China's Covid -Zero rhetoric seems to be moving in a more subtle direction, with governments now promising to rank public concerns over Covid control. The most unmistakable evidence of the start of "living with Covid" campaigns comes from party mouthpiece People's Daily urged citizens to take responsibility for their health. What is speculated to be the beginning of a "living with Covid" media blitz has triggered strong rallies across Asia FX with ringgit and baht, seemingly the two regional currencies with lots of appeals to express a favourable China reopening narrative.
And due to a more reflective approach to the recent Zero-Covid measures, both currencies have made substantial gains this week. Still, the ringgit continues to steal the show in the wake of domestic political certainty.
Malaysian traders also have a strong bias to believe that US headline inflation will continue to ease substantially over the next month or two and that the tail risks around a higher US Fed Fund rates expectations have dropped sharply. Hence a less aggressive Fed rates glide path continues to convince exporters, consistent with our year-end view, to shed long US dollar holding into year-end. A dynamic highly favourable to the ringgit, which doesn't trade on the international open market
Given the improving China outlook, currency exchanges are pricing in a much strong MYR in anticipation of greater demand for the ringgit when more China trade and tourism pick up. Property market stimulus in China should help commodity exporters like Malaysia's economy recover quickly.
Given the improving dynamics, I would not be surprised to see the ringgit trade in the high 4.30s before year-end.
The baht is also bouncing on China's softer covid policy stance that suggested China tourism could come as early as mid-2023 or sooner. In addition, high-season traffic appears to be in full swing if one can gauge the immigration cues at Suvarnabhumi Airport. In fact, the Russian, European and regional influx has caught many operators by surprise, much to the cheer of the Tourism Ministry. Better tourism is a dynamic that could see the baht trade in the 34 handles before year-end.