Ahead Today
G3: China Financial Regulator Briefing, Reserve Bank of Australia policy decision
Asia: Taiwan export orders
Market Highlights
Fed speakers yesterday indicated that the Fed has more work to do in terms of rate cuts, but the size and pace is yet to be determined even as their combined assessments pointed to a decent trajectory still for the US economy. Neel Kashkari is expecting two more 25bps rate cuts this year, while Raphael Bostic said last week’s 50bps cut will bring rates closer to neutral and bolster a labour market that is “weakening but is not weak”, and he remains watchful for return of inflation. Meanwhile Chicago Fed President Goolsbee sees many more rate cuts over the next year with some warning signs seen for the US economy and labour market.
Overall, the Dollar was marginally stronger yesterday while risk sentiment improved. Apart from Fedspeak, what’s key for the Dollar was also the much weaker than expected Eurozone flash PMIs released yesterday, with the manufacturing component falling to 44.8 while services activity also moderating to 50.5. While we do not have the full country breakdown, the weakness was seen not just in Germany but also in France, in part reflecting a post Olympic moderation in activity. It’s unclear how much of this reflects some initial impact from Storm Boris and associated flooding across Central Europe as well. All these could signal some softness in Europe’s activity and supports our view that headline Dollar weakness moving forward should be modest.
The other key for the Dollar is the continued softness that we see in the Chinese economy. On that front, authorities cut the 14-day reverse repo rate yesterday to 1.85%, but this should be seen as a catch-up to the 7-day reverse repo rate cut already announced in July. More broadly, we think Chinese authorities are likely to announce more monetary and fiscal stimulus. We will have a somewhat rare briefing by the top 3 financial regulators led by PBOC Governor Pan Gongsheng on financial support for economic development, and there seems to be some market expectations for announcements such as RRR cuts for instance.
Regional FX
Asian FX markets were mixed to slightly stronger, with USDCNH reaching 7.04 at one point before rebounding to 7.0598. Meanwhile, PHP (-0.66%), TWD (-0.33%) underperformed, while INR, IDR and THB were stronger by 0.2%. Singapore released its CPI estimates for August which was somewhat stickier than expected at 2.2% for the headline rate and 2.7%yoy for the core rate. The rebound was driven by a rise in travel costs during the month which more than reversed the July fall seen previously. Overall, we expect MAS to keep its exchange rate policy stance unchanged in October, with a slight easing move possible in 2025 if Singapore’s inflation does step down more discernibly to the 2% level in 4Q and heading into next year. Meanwhile, we will have the Reserve Bank of Australia’s policy decision, where we expect the RBA to remain on hold and importantly for markets also keep a hawkish stance due to sticky inflation. RBA has been slow to hike rates in this cycle compared with other G10 central banks, and we think it’ll also be slow to cut rates as well moving forward.
