GLOBAL FX STRATEGY | ASIAN FX UPDATE Tuesday, December 22, 2020

Stimulus, Vaccines and EM Asian Currencies FOLLOW US ON TWITTER @SCOTIABANKFX Qi Gao • The US House of Representatives and Senate are set to approve a deal on a FX Strategist (Asia) USD 900bn Covid-19 economic relief package +65 6305 8396 • The Food and Drug Administration (FDA) has approved Moderna’s coronavirus [email protected] vaccine for emergency use, adding a second Covid-19 vaccine to its arsenal • We remain bearish on the dollar and stay with our short dollar positions

Asia Overview - Most EM Asian currencies weakened versus the dollar during Monday’s Asian session. The SGD dropped 0.4%, while the JPY edged down despite a dip in the 10Y UST yield. Economic Surprise Index: US, Eurozone and China The CNY and CNH declined 0.2% and 0.3% respectively. However, USD/CNH will likely test and break below the 6.50 level after the recent adjustments. China will fully lift access restrictions on foreign investment in coal, oil, gas, power generation, excluding nuclear, as well as the new energy businesses, according to a sector white paper released on Monday. The PBoC said in a statement on Monday that China’s prudent monetary policy will be flexible, targeted, reasonable and appropriate in 2021 and that the law-based supervision of bond market needs to be improved in 2021 while market discipline should be tightened with a crackdown on all forms of debt evasion. The PBoC left the 1-year and 5-year LPR unchanged at 3.85% and 4.65% respectively on Monday, holding both of them steady for eight consecutive months. The KRW fell 0.3%. USD/KRW is expected to resume its bearish momentum towards 1,050 post the corrections. South Korea’s exports rose 1.2% in the first 20 days of December from a year earlier, with average daily shipments increasing 4.5% in the period. The South Korean government and ruling party are Source: Bloomberg & Scotiabank FICC Strategy considering including rental subsidies to small businesses hit by rules in another round of emergency handouts next month, which will raise the third DXY Index vs. S&P500 Share Index and 10Y UST cash handout worth around KRW 3tn to more than KRW 4tn. The TWD pared all of Yield its early gains and closed down 0.1% on Monday. USD/TWD is expected to slide further towards the 28.0 level going forward. Taiwan’s export orders rose 29.7% yoy to USD 57.8bn in November, a monthly record high. Taiwan’s investment in mainland China rose 71% yoy in November.

The INR dropped 0.3%. However, USD/INR is likely to slide towards 73.0 in the coming weeks. India Inc pushed for the creation of multiple bad banks to absorb the non-performing assets (NPAs) of public sector banks (PSBs) to enable better credit flow to the economy. India’s bank credit grew by 5.73% to INR 105.04tn while deposits increased by 11.34% to INR 145.92tn in the fortnight ended 4 December. The IDR fell 0.1%. USD/IDR will likely head for the 14,000 support level down the road. Finance Minister Sri Mulyani Indrawati said on Monday that Indonesia is expecting a deeper economic contraction this year of 1.7%-2.2% than its earlier estimate of a 0.6%-1.7% slump. The MYR weakened 0.3%. However, USD/MYR will likely decline to the psychological 4.00 support level in the coming weeks. Malaysia’s Source: Bloomberg & Scotiabank FICC Strategy Financial Markets Committee said on Monday that it’ll oversee the development of an alternative reference rate and deliberate on the continuity of the KLIBOR. The Global Coronavirus Vaccine Tracker PHP closed almost flat. USD/PHP is likely to fall below the 48.0 support level finally. (As of 18 December 2020) The THB tumbled 0.8%. USD/THB will likely consolidate around the 30.0 level at the moment on concerns over a resurgence of coronavirus cases in the nation.

Regional equity indices diverged on Monday. China’s SHCOMP index rose 0.76% amid USD 413.7mn of equity inflows, while India’s NIFTY50 index tumbled 3.14%. South Korea’s KOSPI index increased 0.23% with foreign investors purchasing a net USD 63.5mn of Korean shares. In the meantime, Taiwan’s TWSE index advanced 0.95% as global funds added to their holdings in local main board shares by USD 368.4mn on Monday. Malaysia’s KLCI index and Thailand’s SET index closed down 0.28% and 5.44% respectively. However, Indonesia’s JCI index ended 1.00% higher amid USD 6.2mn of equity inflows.

Source: The New York Times

1 GLOBAL FX STRATEGY | ASIAN FX UPDATE Tuesday, December 22, 2020

EM Asia • The US House of Representatives and Senate are set to approve a deal on a USD 900bn Covid-19 economic relief package that would extend aid to millions of struggling households through stimulus checks, enhanced federal unemployment benefits and money for small businesses, schools and child care, as well as for vaccine distribution. The White House said President Donald Trump would sign it.

In addition, President-elect Joe Biden has made it clear he views this package as a "just a start" and more probably will be needed. It will spark risk appetite further if Democrats take back control of the Senate by winning the two Georgia runoffs on 5 January 2021.

The effective Covid-19 vaccines could fuel market optimism of a faster global economic recovery. The Food and Drug Administration (FDA) has approved Moderna’s coronavirus vaccine for emergency use, adding a second Covid-19 vaccine to its arsenal. Meanwhile, the European Union has given official approval for the coronavirus vaccine developed by Pfizer and BioNTech. European Commission President Ursula von der Leyen said on Monday that deliveries of the vaccine are scheduled to start this Saturday (26 December), with inoculations beginning across the EU on 27-29 December.

Canada has become the latest country to halt flights from the UK following the discovery of a new variant of Covid-19 (VUI-202012/01) that is potentially more contagious and linked to a recent surge in cases in England. However, there is no evidence to suggest that the new variant is more deadly as of now, according to England's chief medical officer Chris Whitty. Some viruses increasing transmissibility can accompany decreasing virulence and mortality rates typically, which has been pointed out by multiple experts. More importantly, Whitty said on Saturday that current vaccines should still work against the new variant.

Comments from Whitty has been endorsed by the World Health Organization. , WHO technical lead for Covid-19, said on Monday that the mutated variant may be more transmissible, but there is no evidence it would increase the "severity associated with this disease." She added "The UK has informed us that they don’t believe that there’s an impact on the vaccine. So that’s good news." Mike Ryan, the WHO’s top emergency expert, said multiple variants have emerged over the last number of months but posed no cause for alarm.

With Biden’s victory reducing risk premium across the markets, the Fed’s pro-growth stance, the new USD 900bn coronavirus relief package and the effective coronavirus vaccine rollout are expected to sustain a risk-friendly sentiment into Q1 2021. In addition, the European Union is now considering a fresh proposal on fishing rights from the UK that aims to secure a post-Brexit trade deal.

We remain bearish on the dollar and stay with our short USD positions against the CNH, INR, IDR and SGD. We look to sell USD/KRW again on rallies after taking profit on the short USD/KRW position at a trailing stop of 1,100 on Friday (18 December).

Market Mechanism: US Fiscal/Monetary Policies, Covid-19 Vaccines and EM Asian Currencies

Source: Scotiabank FICC Strategy

2 GLOBAL FX STRATEGY | ASIAN FX UPDATE Tuesday, December 22, 2020

CONTACTS - GLOBAL FX STRATEGY Shaun Osborne Qi Gao, FRM Chief FX Strategist FX Strategist (Asia) T +1 416 945 4538 T +65 6305 8396 [email protected] [email protected]

Juan Manuel Herrera FX Strategist (G10) T +1 416 866 6781 [email protected]

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