Ahead Today
G3: Bank of Canada Rate Decision, US Existing Home Sales
Asia: Singapore CPI, Taiwan industrial production
Market Highlights
The Dollar strengthened while gold prices rose, as markets continued to remain on tenterhooks amidst geopolitical and election risks. The IMF lowered its global growth forecast for next year to 3.2%, 0.1pp slower than its previous estimate in July, and kept its projection for 2024 unchanged at 3.2%, even as it expects global inflation to slow to 4.3% in 2025 from 5.8%. In an accompanying briefing, the IMF highlighted downside risks through escalation of regional conflicts, coupled with protectionist policies which could disrupt trade as key downside risks for their forecasts. Meanwhile, European Central Bank President Christine Lagarde said that the direction of travel in terms of lowering borrowing costs is clear, but the pace is still to be decided, even as developments suggest inflation could reach the ECB’s 2% target sooner than expected. The market has been ramping up bets for faster ECB rate cuts, and this has weighed on EUR/USD with the pair falling below the 1.080 level this morning.
Looking ahead, markets will focus on the Bank of Canada’s rate decision, coupled with US existing home sales. Consensus is expecting the BOC to cut rates by 50bps , with the Bank of Canada one of the more aggressive central banks in G10 to cut rates to help boost growth even as inflation has slowed below 2%.
Regional FX
Asian FX markets were weaker with a stronger Dollar overnight. KRW (-0.9%), THB (-1%), VND (-0.9%) and IDR (-0.6%) underperformed. For Vietnam the rise in USD/VND has been sharp, with the spot rate getting quite close at 25,390 to the spot ceiling rate of 25,452 with a stronger Dollar, higher US yields and strong domestic capital outflows all combining to weaken VND. In a somewhat deja-vu moment, USD/VND FX forwards are now quite close to the official FX forward ceiling, at roughly 0.3% below the cap across different tenors. Back from April to July 2024, corporates found it difficult to hedge their FX exposures due to the FX forward ceiling and the recent move stronger in the Dollar, Trump trades, together with domestic outflows, coupled with a dovish State Bank of Vietnam have led to a challenging situation for the Vietnam Dong again. Looking ahead, markets will focus on Singapore’s CPI print, with consensus expecting this to print at 1.9%yoy from 2.2%yoy. We think that MAS will likely have some policy space to ease slightly in 2025 as inflation steps down closer towards the Singapore’s central bank’s target (see Singapore – MAS to ease in Jan 2025).
