Forex Investment and Currency Trading

The latest inflation and trade data from Vietnam have yet to show improvement and this has triggered strong reaction from overseas investors. Sentiment is likely to remain cautious until there are convincing signs of turnaround in both sets of indicators. Meanwhile, the Vietnamese dong (VND) is likely to come under downward pressure as markets remain focused on the country’s ability to meet the sizeable trade deficit.
Inflation and trade deficit staying high
Consumer price index rose 25.2% in May on the year-on-year basis, or 3.9% month-on-month. Food, which is over 40% of the CPI’s weighting, rose 67.8% y/y, or 22.2% m/m. Building [...]

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There has been much recent speculation that China has changed its FX policy and no longer wants a fast appreciation of the Chinese yuan (CNY). People who have this view use the recent consolidation in USD-CNY to support their case. However, a more detailed examination of CNY trading patterns against China’s major trading partners suggests that CNY appreciation has accelerated rather than slowed – against other currencies than the USD. This leads us to the view that the People’s Bank of China (PBoC) may now be managing the CNY on a NEER (Nominal Effective Exchange Rate) or trade weighted basis [...]

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The slower pace of CNY appreciation has continued with a CNY/USD gain of only 0.35% since the beginning of April. Looking forward the current, more gradual pace could persist given the likely CPI moderation in 2Q and increasing signs of weaker export growth. April CPI, due next Monday, is expected to moderate slightly to about 8% from 8.3% in March. Accordingly, the chance of another interest rate hike in May has been reduced, particularly after the latest Fed rate cut further widened the US-China interest rate spread. Meanwhile, concerns over a possible export slowdown could limit the scope for CNY [...]

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The BoT’s quarterly Inflation Report (IR) released on April 22 reinforced the view that the scope for rate cuts is limited by the already accommodative monetary conditions and rising inflationary pressure. In
fact, market sees increased prospects for BoT to raise the benchmark repo rate in 2H08 on growing concerns over price stability. In addition, concerns over political stability will likely limit THB gains in the near term.
Increased scope for rate hikes in 2H08
While Governor Tarisa signaling a growth accommodative bias during the annual policy outlook briefing on January 28 was widely seen as a precursor to rate cuts, the April IR [...]

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