NJA - Bank Indonesia in focus; SDR ambition more important than data for CNY

BI is expected to keep the policy rate on hold and forecast one rate cut in June after the release of the May CPI print. 

However, the government has seen pressuring BI to cut rates, given slowing growth, even though BI has favored a tight monetary stance to manage the current account deficit. 

Indeed, the recently reported Q1 CAD at 1.8% is wider than BI's initial estimate of 1.6% of GDP for the first quarter. Considering that the IDR reacted negatively when BI lowered the policy rate 25bp in February, a surprise cut or any clear indications of a shift in policy bias may lead the IDR to sell off further. 

"We see the IDR underperforming in the coming months due to unfavourable current account seasonality arising from income payment outflows", says Barclays.

In China, the Markit flash PMI (Thursday) is expected to remain in contraction mode at 49.0. Economic data have become less relevant for the CNY of late.
 
Despite downward pressures on growth, Chinese authorities have this week fixed the daily CNY central rate at the strongest level since February 2014, despite the sharp appreciation of its REER in recent months. 

It is likely that China wants to avoid any official US criticism of an undervalued exchange rate, which could act as an obstacle to SDR entry ahead of the October/November review, even at the cost of a loss of competitiveness .