Expecting a quiet day today with US out for Memorial Day and also no meaningful data expected for today. USDMYR opened higher at 3.0400 and expected to trade on the higher range of 3.0100-3.0600.
The Dollar strength we have been calling since past few weeks we think have finally arrived and probably just started or in the middle of it. We called the Dollar rally on the back of risk aversion and correction in equity markets and we think both has started.
On top of that, with every country weakening their currencies, this fuelled further Dollar strength as it is the default pair against most currencies. USDJPY gave a reminder to market not to be overly zealous with buying USDJPY as the outflow in the selldown in the Japanese Equity markets cause the pair to turn from 103.50 to 100.90, it will be interesting to see if the bids at 100.00 can support or we can see it break down below 100.00.
AUDUSD also at another critical trading level, a break of 95.80 will open the steep fall to 93.00 but if we are supported here, market could bring the pair back towards 97.80 and the strong resistance at 98.80. But make no mistake it will still be USD strength in the coming weeks and it will be an interesting one to watch.
And to share something on China policy update from our S’pore research desk:
· China’s State Council released the policy guideline on 24 May to support the economic reform. The clearly written reform agenda is the boldest plan in decades in our view. The approved policy guideline covers reforms on seven major topics including:
1) Streamlining administrative process.
2) Taxation reforms (such as expanding pilot program of business tax to VAT and imposing resource tax on coal and expanding the pilot program of property tax)
3) Financial system reforms (including interest rate and currency liberalization, improving OTC equity market and launching the deposit insurance system)
4) Investment and funding structure reform including allowing private capital to invest in finance, energy, railways and telecommunication sectors.
5) Resource pricing system reform such as electricity pricing reform.
6) Social security reform including improving medical insurance system and unemployment benefit, enhancing the surveillance over the food and medicine safety, protecting environment.
7) Urbanization and urban & rural planning reform, in particular push forward the household registration system reform.
· Meanwhile, China’s reform willingness was reinforced by Chinese President Xi Jinping who mentioned during the same day that China won’t sacrifice the environment to ensure short term growth, signaling a higher tolerance for lower growth target from the new leadership. The recent rising awareness among local residents about environmental protection has led to rapidly increasing number of demonstrations in local government levels against the investment in industrial factories. The strong tone from President Xi may delay or even cancel some investment projects, which may lead to slower growth.
· Although China is moving swiftly to a quality centric growth model, we should still not downplay the role of government led investment as China’s urbanization process is likely to ask for big amount of investment. The official from China’s economic planning agency National Development and Reform Commission denied a media report that the proposed urbanization development plan by NDRC was denied by Premier Li due to concerns on CNY40tn urbanization spending plan may add to local government debt problem and property bubble concerns. The NDRC is likely to release detailed urbanization development plan sometime this year as the guideline for the next decade.
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