Asia FX Talk - Less Hawkish Fed Remarks

  • Nov 29, 2023

Ahead Today

G3: Eurozone consumer confidence, Germany CPI, US Wholesale Inventories

Asia: Bank of Thailand policy, Vietnam CPI, Trade, IP

Market Highlights

Christopher Waller, one of the Fed’s most respected hawks, signalled that interest rates were unlikely to rise further and could be cut if inflation continued to slow. He said that if the Fed sees disinflation continuing, they could then “start lowering the policy rate just because inflation’s lower”. These comments by Governor Waller seem to be a shift in thinking, which previously had also emphasized the importance of sustaining growth below trend to get inflation back to target.

The US Dollar sold off sharply by 0.4% with EURUSD hitting 1.10, US 10-year yields fell to 4.3%, while risk assets were marginally stronger. The futures markets are now pricing the 1st rate cut from May, with a 30% chance of a rate cut from March, for a total of 100bps of cuts for 2024.

Meanwhile, oil prices jumped above US$81/bbl even as reports emerged around continued deadlock around talks for OPEC+ production cuts.

Regional FX

Asian FX pairs were generally stronger against the Dollar on back of Fed official comments and the weaker US Dollar. The China’s central bank quarterly monetary policy report signalled that credit growth is likely to be slower next year, but also emphasized the changing structure of loans, with more credit flowing to strategic sectors such as technology and manufacturing, and less to property and local government vehicles. The PBOC also pledged to lower real lending rates in the report. Taiwan’s GDP printed in line with consensus at 2.3%yoy, with a pickup in exports offsetting still weak fixed investment activity. Looking ahead, the Bank of Thailand will release its policy decision, where we expect the central bank to keep rates on hold at 2.5%. In comments made yesterday in a conference, Bank of Thailand governor Sethaput Suthiwartnarueput said that Thailand and Asia are entering unchartered territory as there isn’t a good precedent where interest rates in Asia are significantly lower compared with advanced economy counterparts.