Asia FX Weekly - Fast and Furious as Trump Team Assembles

Week Ahead FX outlook:

This past week has been characterised by the fast and furious nominations of Trump’s cabinet members as his team starts to assemble and take shape. The key message for markets from the various appointments is a clear hawkish stance on China and foreign policy, together with a clear focus to deliver on stricter immigration policies. In addition, while the key positions with regards to tariffs of Treasury Secretary and Commerce Secretary have not been decided yet, it is very likely that Robert Lighthizer will have an important role to play and as such the focus on pushing through tariffs with spillover impacts to China and Asia will very much be there.

Given the scale of Trump’s victory and the mandate that he got, these incremental developments are not surprising to us, and indicate that he should hit the ground running on Day 1 including on pushing through tariffs. All this comes with two other important developments for markets this week, with Fed Chair Jerome Powell saying that the US economy is not sending signals for the Fed to be in a hurry to cut rates. In addition, while the latest China monthly macro data provided some glimmers of hope with slightly better than expected retail sales, in the broader context the economy still remains fairly weak and in need of more meaningful stimulus.

All of these certainly help to explain why Asian currencies weakened against the Dollar, while broader markets in Asia took on a risk-off tone. Moving forward, we continue to see a stronger Dollar as the path of least resistance. We see the likes of KRW, CNY, THB and MYR underperforming, both because they are export oriented and also because they are relatively more leveraged to Chinese end-demand. We think the likes of INR and PHP should be relatively more insulated to Trump’s proposed policies, even as they should still weaken against the Dollar in absolute terms.

The Dollar strengthened further as Trump's nomination of key cabinet members came in