Asian currencies face resistances after strong recovery

AUD continued to rally with higher oil prices. AUD/USD ended yesterday at 0.7466, its highest close since Jul 2015. According to IMM data, speculators have started to turn net long AUD from the week ending 19 Feb. This came after WTI crude oil prices bottomed at $26.21/barrel on 11 Feb and rallied to $37.90 yesterday. China led USD/CNY into a lower 6.50-6.55 range after it returned from its Lunar New Year holidays. As stock markets recovered globally, AUD/JPY was no longer pressured lower by risk aversion.

Domestically, real GDP growth surprised on the upside in Australia and returned to 3.0% YoY in 4Q15 which effectively ended rate cut bets. With oil prices higher, no one believed the Reserve Bank of Australia's pledge to keep the door open for cut rates on low inflation.

The higher AUD also reflected the recovery in the Asean+3 (CNY, JPY and KRW) currencies, where most of Australia's exports headed to. USD/MYR and USD/THB have returned to their Oct 2015 lows while USD/JPY and USD/IDR fell further below their Oct lows. This helped to offset USD/KRW and USD/PHP who have recently come off their highs alongside USD/CNY.

USD/SGD has not been able to fall further below 1.3750, its low last Oct. Singapore's nominal effective exchange rate (SGD NEER) has recovered to the mid of its mildly appreciating policy band. With inflation below 0% and the upcoming budget seeking to help companies cope with a slower economy, the SGD NEER should remain in the lower half of the band.