Stronger Asian currencies heading into Powell’s Jackson Hole Speech

Week Ahead FX outlook:

Asian FX continued to strengthen against the Dollar this week ahead Powell’s keynote speech in the Jackson Hole Symposium on Friday evening. This week was eventful, with BOJ Governor Ueda’s testimony to Parliament, coupled with the release of Fed minutes and etc. The global factors were broadly supportive of a weaker Dollar. The Fed minutes were dovish and continued to telegraph a September cut, with the “vast majority” of participants saying it would be appropriate to ease policy at the next meeting. Meanwhile, Governor Ueda reiterated the guidance from the July meeting, which created some volatility of USD/JPY pair. Lastly, US data such as jobless claims did not point to any further deterioration in the labour market, even as backward revisions to non-farm payrolls pointed to lower job gains than previously estimated.

In Asia, these trends have also allowed some central banks to turn more dovish at the margin, and in turn, also helped to support foreign inflows into local currency bond markets, and as such also spilled over into Asian FX performance. The clearest has been in Bank of Korea’s meeting this week, where it kept rates on hold at 3.50%, but importantly for markets, signalled that four members of the board were now open to rate cuts over the next three months compared with just two in the July meeting, which was coupled with a dovish tilt in the policy statement. Meanwhile, Bank Indonesia struck a balanced tone in its policy meeting but sounded incrementally less hawkish, with BI Governor Perry Warjiyo signalling that global developments warrant some vigilance but domestic demand also needs to be supported (see Indonesia – Lower policy rate, larger fiscal deficits). The Bank of Thailand statement was comparatively more neutral, while Taiwan’s central bank sounded a hawkish tone about rising housing prices. Looking ahead, the focus will on trade and production data from Korea and Singapore, India’s 1Q GDP estimates for FY25, coupled with US PCE inflation.

Foreign inflows into Indonesia and South Korea local currency bond markets