FxWirePro: Monetary policy stimulus most prevalent in Asia – Uphold KRW vols spread

The Reserve Bank of India (RBI) cut rates as widely expected for the third consecutive meeting by 25bp to 5.75% and shifted to a dovish bias. When Governor Das lowered rates in February this year, he was accused of succumbing to government pressures. 

However, just four months later, he is perceived to be well ahead of the curve after the Fed’s latest dovish pivot. RBI noted downside risks to growth and with inflation still below the 4% mid-point target, we could yet see a further 75bp cut in the remaining three meetings this year. 

On FX, RBI is likely to remain pragmatic and allow USDINR to find its own level and drift higher from the current sub-70 level.

In yet another case, A rate cut seems to be on the table for Bank of Korea as well. BOK governor Lee Ju-yeol said this morning that the Fed’s comments were more dovish than expected, signaling a cut might be imminent. The Bank of Korea held its base rate steady at 1.75 percent on May 31st, 2019, despite growing pressure to ease monetary policy as the ongoing Sino-US trade dispute hits global demand for the country's exports.

The BOK minutes, released this Tuesday, showed that there were two dissenting votes in May’s meeting (BOK remained on hold in that meeting), with one calling for an immediate cut while the other suggesting a cut in July. 

In the meantime, the government has reportedly delayed publishing its economic outlook report for H2, as the policymakers will contain revisions to economic forecasts, which is probably is downward adjustment given the current global backdrop and recent data flows locally. All these suggest that the risk of a rate cut in July has been rising significantly.

USDKRW has experienced a very volatile session over the past two weeks, and clearly, today’s GDP numbers are KRW negative. USDKRW is heading towards 1150 while articulating, with KRW having deprecated more than 4.6% versus USD year to date. 

We consider a second idea in the Asian vol space, this time aimed at harvesting a positive Carry and to offer some protection in the case that the trade dispute between the US and China were to intensify. We were recommending entering a long 6M USDKRW vol/ short 6M USDTWD vol idea for benefitting from the relative cheapness of KRW vol compared to regional peers. It is SGD vol which catches our attention as a possible laggard in the Asian space, if ever as a cheap hedge for the short-vol leg rather than as a conviction trade for hedging an extended risk-off scenario in the region. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly USD spot index is flashing at -95 levels (which is bearish), while articulating (at 13:33 GMT). 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex