Ahead Today
G3: BoJ meeting
Asia: China 1y and 5y LPR
Market Highlights
The DXY US dollar index could not gather much strength post FOMC, with US rates set to decline further. But the 100.50 support level for DXY still acts as a support for now. EUR, GBP, CAD, and SEK gained against the US dollar. Notably, GBP rose to a year-to-date high versus the US dollar after the Bank of England kept its policy rate unchanged yesterday and urged for patience on cutting rates. USDJPY extended its rebound to the 144.00-level before paring back gains to fall below 143.00. Any US dollar rebound could prove to be short-lived. Meanwhile, US current account deficit widened to US$266.8bn in Q2 from US$237.6bn deficit in Q1. Initial jobless claims fell to 219k in the week ending 14 September, vs. market expectation and prior week’s reading of 230k. Continuing jobless claims also eased to 1829k from 1850k in the prior week.
Market focus will be on the BoJ policy rate decision today. We think the BoJ will stand pat, leaving markets to watch for any hint of a further hike in October or December. Japan's CPI inflation was 3%yoy in August, in line with expectation but faster than 2.8%yoy in July, though external demand was weaker than expected. We think the BoJ remains on a path of rate normalization, so long as inflation moves in line with its outlook.
Regional FX
Asia ex-Japan currencies have strengthened to the strongest level against the US dollar in more than a year, with MYR (+0.9%), IDR (+0.7%), and THB (+0.5%) leading gains in the region yesterday. The 0.4% gain in CNH likely has some positive spillover effects on the MYR and THB too. Meanwhile, USDIDR broke a key support level of 15300. Reflecting the potential for rapid easing pressures from US rates, lower oil prices, and Bank Indonesia’s FX policy support, we have revised down our short-term USDIDR forecasts to 15150 in Q424 and 14900 in Q225. We have also remained positive on the ringgit, looking for further gains, underpinned by solid domestic growth prospects and structural reforms. Meanwhile, USDTWD movement was quite muted yesterday. Taiwan’s central bank kept its policy rate unchanged at 2% but raised the RRR by another 25bps to cool an overheated property sector. We still see upside for TWD, underpinned by US dollar weakness and continued tech related equity inflows.
