Asia FX Talk - Focus on PCE inflation later

Ahead Today

G3: US PCE Deflator

Asia: Taiwan Industrial Production, India’s GDP

Market Highlights

It was a somewhat risk-off day overnight, with equities falling and the Dollar strengthening, all be it that Bitcoin managed to swim against the tide and surpass the $60,000 mark. The macro data showed that US 4Q GDP was revised down slightly to 3.2% from the 1^st estimates of 3.3%. The real story was in the details, with all categories of domestic demand revised up including private consumption, and with inventories now subtracting from growth. Overall, these US growth numbers suggest no Fed rate cuts are likely in the near-term, and the Fed speak overnight continued to indicate as such, including comments from both Williams and Bostic urging patience.

On that note, the key inflation indicator the Fed looks at – the PCE deflator is out later tonight. However, with the market already expecting a 0.4%mom rise in core PCE building in information from the CPI and PPI, the risks are probably balanced at this point.

Regional FX

Asian FX markets traded slightly weaker against the Dollar, with IDR (-0.35%), KRW (-0.28%) and PHP underperforming (-0.27%). In Asia, markets are watching closely at China’s manufacturing and non-manufacturing PMIs out later this week, together with growth targets and possible policy direction during the National People’s Congress from 5 March. Looking ahead, Taiwan will release its industrial production estimate for January, which is expected to rise by 10.9%yoy from -3.9%yoy the previous month, and in line with broader export and manufacturing recovery we see across the region. Meanwhile, India is expected to release its 4Q GDP estimate, which is expected to slow to 6.6%yoy from the initial estimates of 7.6%yoy. We maintain our constructive view on INR and forecast USDINR at 81.5 by year-end, with growth robust, coupled >$20bn of bond index inclusion inflows starting from June 2024.