Asia FX Talk - Laying the groundwork

Ahead Today

G3: Eurozone PMI, S&P PMI

Asia: BNM Policy Rate

Market Highlights

The Bank of Japan kept its -0.1% short-term rate and its yield curve control unchanged, but expressed more confidence that the central bank is gradually achieving its inflation objective. During the accompanying press conference, Governor Ueda indicated that the BOJ is moving closer to raising rates, but refrained from giving a stronger indication over the exact timing of an exit from negative rates. Moving forward, upcoming wage negotiations will be key, and some of the initial data will likely be in just before the March meeting. We think that a rate hike by BOJ in April is the most likely scenario.

Meanwhile, Chinese authorities are seeking to stabilize the stock market by mobilizing around 2 trillion yuan mainly from offshore accounts of Chinese state-owned enterprises, together with at least 300 billion yuan of local funds to invest in onshore shares. This comes after a torrid start to the year for Chinese equities, and on the back of recent surprise decision to keep the MLF and loan prime rates unchanged.

The Dollar was stronger by 0.2%, equity market risk sentiment bounced, while US 10-year yields inched above 4.1%.

Regional FX

Asian FX was generally stronger against the Dollar on the back of the announcement around Chinese authorities’ support to the stock market. USDCNH fell to 7.166, while KRW and TWD outperformed (0.4%). Taiwan’s industrial production was weaker than expected at -4%yoy, down from 2.5%yoy the previous month. This was on the back of the softer than expected export new orders data out earlier this week. While electronic exports across the region have generally picked up, the moderation in Taiwan’s trade numbers bears watching to see if it’s a harbinger of things to come. Meanwhile, Singapore’s inflation was higher than expected at 3.7%yoy for the headline rate and 3.3%yoy for the core rate, with details showing a rise in services inflation. This print comes just ahead of the MAS meeting on 29 Jan. We expect MAS to keep its exchange rate policy on hold, given inflation pressures in the pipeline such as GST rate increases coupled with other tax hikes.