Global Easing Favors Risk Assets, but Local Risks in Indonesia and Others Require Caution
AI summary card
Global Easing Favors Risk Assets, but Local Risks in Indonesia and Others Require Caution
Nomura recommends long SGD/IDR, short USD/CNH trades with conviction up to 5/5, monitoring US-Iran agreement progress and Asian inflation data
- Long SGD/IDR conviction raised to 5/5, target 14600 (end-August)
- Short USD/CNH conviction 4/5, target 6.60 (end-August)
- Short AUD/NZD conviction raised to 4/5, target 1.1750
- US-Iran agreement could pressure USD and oil prices
- Indonesia faces fiscal deficit, MSCI exclusion, and policy risks
- Monitor US non-farm payrolls on June 5 and Asian central bank meetings
Report interpretation
Overview
This report focuses on strategic trading opportunities amid improving global conditions while highlighting local development risks. Key conclusions include: expectations of easing US-Iran relations favor risk assets, but emerging markets like Indonesia face policy and capital outflow pressures; Asian FX trades like SGD/IDR and USD/CNH are high conviction; G10 pairs like CHF/JPY and AUD/NZD also offer value. The report emphasizes tracking US non-farm payrolls in June, Asian inflation, and central bank meetings.
Core views
For Asian FX strategy, the report raises long SGD/IDR conviction to the highest 5/5, target 14600 (end-August), primarily due to multiple pressures on the Indonesian rupiah: official tolerance for exchange rate flexibility, natural resource export concentration policies raising foreign investor concerns, fiscal deficit hitting a 12-year high, and MSCI index exclusion leading to ~$1.7bn outflows. The Singapore dollar benefits from economic resilience (Q1 GDP revised up to 6.0%) and inflationary pressures, with expectations of MAS tightening in July. For China, maintaining short USD/CNH conviction at 4/5, target 6.60, based on higher sensitivity to USD declines, lower daily fixing rates, corporate USD repatriation, and AI industry capital inflows. Short USD/TWD conviction at 3/5, target 30.5, benefits from strong tech sector and expected MSCI inflows. Among G10 FX, long CHF/JPY (target 206.50) and short AUD/NZD (target 1.1750) both have 4/5 conviction, the former due to mild Swiss National Bank intervention, the latter due to RBNZ's hawkish stance. Long EUR/GBP (target 0.8950) and long USD/CAD (target 1.4250) have 3/5 conviction, based on ECB rate hike expectations and US-Canada economic divergence, respectively. For rates strategy, India initiates 1s5s NDOIS flattener (3/5 conviction), Korea maintains receiving 2y2y NDIRS (3/5 conviction), China maintains paying 3-year NDIRS (3/5 conviction), and Singapore takes profits on SORA positions.
Analysis framework
The report employs a multi-dimensional analytical framework: 1) Geopolitical event drivers (e.g., US-Iran agreement impact on USD and oil); 2) Macro data tracking (non-farm payrolls, inflation, GDP); 3) Central bank policy expectations (rate decisions and intervention signals); 4) Flow analysis (MSCI adjustments, foreign capital flows); 5) Valuation models (CNH undervalued by 9.7%). Combining event catalysts with fundamentals, it constructs high-conviction trade portfolios with stop-loss and time targets.
Methodology notes
Impact of geopolitical events (e.g., US-Iran agreement) on asset prices
The report analyzes how expectations of US-Iran détente could affect USD, oil prices, and risk assets, showcasing event-driven strategies in FX trading
Impact of divergent rate cycles on currency pairs
Constructing AUD/NZD trades by comparing RBA-RBNZ rate paths exemplifies cycle inflection analysis in G10 FX
Evaluating central bank FX intervention effectiveness
Assessing short-to-medium term FX impacts of Japan MoF's ¥11.7tn interventions and SNB's intervention tendencies
Impact of natural resource export policies on exchange rates
Indonesia's export concentration policies sparking foreign investor concerns illustrate supply-side policy shocks to EM currencies
Key data
- Long SGD/IDR target14600End-August, conviction 5/5
- Short USD/CNH target6.60End-August, conviction 4/5
- Short AUD/NZD target1.1750End-August, conviction 4/5
- Indonesia fiscal deficit-IDR164.4trnApril data, 12-year high
- MSCI Indonesia stock exclusion~$1.7bnExpected outflows
- US May non-farm payroll consensus+93KDue June 5
- CNH undervaluationAverage 9.7%Based on four-model calculation
Impact & implications
The report argues that a US-Iran agreement would pressure USD and oil prices, benefiting risk assets and Asian currencies. However, Indonesia's local risks (policy, fiscal, outflows) may offset external positives. China's AI progress and currency undervaluation support CNY strength. Among G10 pairs, CHF and NZD benefit from central bank divergence. Asian rates curve flattener trades reflect hike expectations.
Risks
- US-Iran agreement fails or escalates
- Indonesia policy risks trigger rating downgrades
- Asian inflation undershoots expectations
- Central bank interventions exceed expectations
- Strong US non-farm payrolls boost USD
What to watch
- US non-farm payrolls on June 5
- RBI rate decision on June 5
- ECB rate decision on June 11
- MSCI Indonesia free float factor review (June 18)
- US-Iran talks and Strait of Hormuz reopening