Asia FXs weakened on a stronger dollar in the first week of 2024

FX views: Asia market started the new year on a weak footing, amid rising middle east tensions, strong US labour market data, still soft Chinese economic data. Amidst that backdrop, most EM Asian currencies depreciated against a stronger Dollar and higher US yields, with KRW underperforming and INR outperforming compared with the peers. Upcoming inflation data for US and China will be key for global markets this week, to help validate pricing for Fed rate cuts this year, together with any expectations for further stimulus measures in China.

Week in review: Latest PMI data showed China’s manufacturing activity continued to slow while the construction sector supported non-manufacturing sector’s expansion. South Korea’s exports growth slowed to 5.1%yoy in December. Thailand’s deflation remained in December, while headline inflation in Philippines and Taiwan cooling down. In December, EM Asia’s manufacturing PMI performance diverged. We saw further contraction in Taiwan, South Korea and Thailand and Vietnam, while Indonesia and Singapore continue to expand.

Central bank monitor: Asian central banks kept rates on hold in their December meetings, including out of India, Indonesia, Philippines and Taiwan. We expect the Bank of Korea to remain on hold this week. Moving forward, we think Asian central banks are likely to cut rates in 2024, with China 1st to do so given still soft growth prospects.

Week ahead: This week, market will focus on December inflation for US, China and India, together with the result of Taiwan’s 2024 presidential elections. In addition, we will have December trade data of China, Taiwan and the Philippines, unemployment rate for South Korea (December) and the Philippines (November), and November industrial data for India and Malaysia.

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China's NBS manufacturing PMI continued to contract after a temporary expansion in September