Asia FX Weekly - Focus on PMIs this week

FX views: Last week was a week where the micro helped to offset the macro, with the Dollar weaker by 0.4%. Although US yields rose as the Fed minutes signalled caution around the pace of Fed rate cuts, global equity markets rose sharply on the back of strong results by Nvidia coupled with a larger than expected rate cut by China. Asia’s FXs were mixed, with some idiosyncratic local factors dominating such as increasing pressures on the Bank of Thailand to cut rates by the government.

Week in review: Fed’s January minutes and officials talk pushed US rates slightly higher and weakened the yield spreads of government bonds between Asia and US. While BoK and Bank of Thailand kept their policy rates unchanged, PBOC cut its 5-year LPR by 25bps, larger than market consensus expectation. Thailand Q4 GDP changed -0.6%q/q, worse than the -0.1%qoq consensus expectations.

Capital Flows: Capital inflows into Asia’s equity markets picked up as global markets were swept by Nvidia’s blowout results, the AI chip boom theme, coupled with the much larger than expected rate cut by China’s central bank. China’s stock markets were a key beneficiary with US$1.5bn of equity market inflows, with South Korea and Taiwan also seeing continued buying. Sentiment towards Asia’s bond markets were more muted with the rise in US yields.

Week ahead: US PCE inflation, ISM survey, Japan’s inflation data, coupled with China’s official manufacturing and non-manufacturing PMIs will be key. Markets will focus on any further signs of pickup in economic activity and price pressures out of the United States, but just as importantly, whether economic activity stabilises in China. Expectations on China’s upcoming National People’s Congress (NPC) in early March will also be important in this regard.

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PBOC cut 5-year LPR by 25bps on February 20