Ahead Today
G3: US initial jobless claims, eurozone CPI
Asia: Vietnam CPI, Thailand CPI
Market Highlights
The broad US dollar index (DXY) extended its decline by 0.4% in Wednesday’s session, with USDJPY falling by more than 1% while EURUSD has risen to the 1.0400 handle. US Treasury yields have dipped, led by the longer end of the curve. An easing of tariff fears, falling US yields, along with a lightening of long US dollar positions, have likely led to the US dollar’s latest decline. The US Treasury has also kept its guidance to sell $125bn worth of long-term Treasury debt sale at its quarterly refunding auction this year, possibly easing some fiscal concerns. However, a larger US trade deficit of $98.4bn in December vs. $78.2bn in November could still presage more trade tariff actions ahead.
Meanwhile, the US labour market has stayed resilient, with the latest ADP data showing private sector firms adding 183k jobs in January vs. an upward revised 176k in December, beating Bloomberg consensus of 150k. But the US ISM services index softened to 52.8 in January, from 54.0 in December, though still in expansionary territory.
In Japan, a faster pace of labour cash earnings (+4.8%yoy in December vs. 3.0%yoy in November and Bloomberg consensus of 3.7%yoy) should help keep BoJ on its rate normalization path this year. This, along with a dip in Treasury yields, will help support some modest yen strength.
Regional FX
Asia ex-Japan currencies have gained against the US dollar on the back of recent US dollar weakness. Notably, THB (+0.7%) and MYR (+0.5%) have led gains in the region However, INR weakened by 0.4%, likely on expectations for an RBI rate cut this month. China’s onshore market also reopened following the Lunar New Year Holiday, with the PBOC keeping its daily USDCNY fixing rate below the 7.2000-level to contain the pace of yuan depreciation, while leaving room for potential bilateral negotiations with the US over a range of issues including trade, tech, and TikTok.
In Indonesia, economic growth was 5.02%yoy in Q4, from 4.95%yoy in Q3 and beating consensus of 4.96%yoy. The pickup in growth was supported by private consumption, while some moderation was seen in investment and government spending compared to a year ago. This brings full-year growth to 5.0% in 2024, a similar pace of growth in 2023. A slightly stronger than expected GDP reading, along with a softening US dollar, should help contain the pace of rupiah depreciation. While tariff fears have eased, our baseline assumption of more tariffs actions to come has kept us cautious about IDR. We forecast modest IDR depreciation to 16400/USD in Q1 and 16450/USD in Q2.
Meanwhile, USDSGD could see further downside as the US dollar softens and trade tensions appear to have eased for now.
