Asia FX Talk - The Elephant In The Room

Ahead Today

G3: US Leading Index

Asia: China 1-year and 5-year loan prime rate, Taiwan export orders

Market Highlights

Risk sentiment bounced as the University of Michigan survey showed both an improvement in consumer sentiment, coupled with a decline in both near-term and longer-term inflation expectations. In particular, the expectations component rose to 75.9 in January, the highest levels since July 2021, while 1-year ahead inflation expectations fell to 2.95, back to levels last seen in early 2021.

Several Fed speakers provided a neutral and data dependent stance, with Atlanta Fed President Bostic saying he wants to be sure inflation is well on its way to the central bank’s 2% inflation goal before easing policy. Meanwhile, European Central bank President Christine Lagarde attempted to address the elephant in the room, saying the best defense against a return of Trump to the White House is a strong single market in Europe.

Markets will focus on China’s loan prime rate decision out later today. Consensus expects no change in the rate, following the recent surprise decision by the PBOC to keep its MLF rate unchanged. It’ll be a busy week with ECB, BOJ, coupled with Bank Negara policy decisions.

Regional FX

Asian FX was generally stronger against the Dollar as the USD weakened on the back of the University of Michigan survey. KRW (+0.8%) and TWD (+0.5%) were key outperformers, while USDCNH fell to 7.20. Malaysia’s 4Q advance estimates for GDP was weaker than expected at 3.4%yoy (vs consensus for a 4.1%yoy rise). Not all the details are out yet, but it seems like there was a slowdown in construction and services activity, even as manufacturing and mining showed some slight rebound. Meanwhile, Malaysia’s exports disappointed consensus declining 10%yoy, with electronics exports still soft.