Ahead Today
G3: US PCE Inflation, US Personal Income, US personal spending, US Durable Goods Orders, US Initial Jobless Claims
Asia: Thailand Manufacturing Production, China industrial profits
Market Highlights
In what was likely a preview of what’s to come in Trump 2.0 on tariffs, President-Elect Trump announced that he will impose an additional 10% duties on China, and 25% tariffs on all imports from Mexico and Canada on Day 1 of stepping into office, as part of measures to clamp down on illegal immigration and illegal drugs into the US. The Dollar strengthened while the Mexican Peso, Canadian Dollar, and to a smaller extent CNH weakened past the 7.25 levels. Mexican President Claudia Shein suggested that Mexico could retaliate to Trump’s threat of tariffs with levies of their own, while Canadian Prime Minister Justin Trudeau said he was on the phone with Trump to discuss ways to work together. Meanwhile, Bloomberg News reported that Jamieson Greer will likely be named as US Trade Representative. Greer is viewed as a protégé of Robert Lighthizer, having served as his chief of staff during his first term as US Trade Representative, and closely involved in Trump’s first term trade policy decisions.
Ultimately, these developments reinforce our view that Trump will move quickly and aggressively on tariffs starting on Day 1 of his term, and with decisions on trade policy ultimately resting with Trump. For Asian currencies, we continue to think the likes of CNH, KRW, THB, and MYR are vulnerable, while INR will be relatively more insulated (see Asia FX – The impact of Trump’s potential tariffs and Global FX Monthly Update).
Regional FX
Asian currencies were mixed to weaker on the back of Trump’s tariffs threats, with IDR (-0.35%), MYR (-0.16%) and PHP (-0.14%) underperforming, while KRW (+0.26%) and TWD (+0.2%) strengthening, together with some outperformance in the Japanese Yen. What could have helped Asian FX was likely an announcement by Israel that it reached a 60-day cease-fire agreement with Lebanon’s Hezbollah after weeks of talks mediated by the US, which helped to boost equity market sentiment to some extent. Nonetheless, oil prices were steady, with reports suggesting that key OPEC+ have begun discussions to delay oil production restart planned for January potentially for several months. Meanwhile, trade and manufacturing data from Asia were mixed, with Singapore’s industrial production moderating to 1.2%yoy from 9.8% yoy previously. Thailand’s exports rose sharply to 14.6%yoy from 1.1%yoy. For Singapore in particular, we think that continued disinflation should provide MAS policy space to start to ease policy by loosening the slope of its exchange rate band come its January policy meeting. South Korea’s National Pension Service was reported to have been selling US Dollars in the onshore FX market in recent weeks, with Reuters reporting that the selling was likely for portfolio rebalancing or tactical FX hedging purposes.
