Asia FX Talk - BI to hold rates amid a strong dollar

Ahead Today

G3: US mortgage applications

Asia: China loan prime rates, Bank Indonesia policy rate decision

Market Highlights

The broad USD dollar index (DXY) has continued to consolidate below the key resistance level of 107.00 following its recent rally. Meanwhile, US treasury yields have declined modestly across the curve, posing some drag on the US dollar. Markets will continue to watch for President-elect Donald Trump to fill two key appointments - the treasury secretary and trade representative roles, while taking cues from upcoming macro data for the next dollar move. The upcoming data releases, such as initial jobless claims, PMI, and the University of Michigan sentiment survey, could still point to a resilient US economy, keeping the US dollar supported.

Meanwhile, the 160-level is still acting as a strong resistance level for USDJPY. And if there’s any yen upside from here, we think it could be limited, with markets having reduced US rate cut expectations, while the BoJ is likely to remain on a gradual rate normalization path. As we have heard from BoJ governor Ueda on 18 November, there was no clear rate-hike hints for the 19 December meeting.

In the euro area, CPI rose 2%yoy in October, ticking up from 1.7%yoy in September. With inflation contained, the balance of risks for ECB will continue to shift to growth, especially given the likelihood of higher US tariffs early next year. Notably, EURUSD has been the worst performing G10 currency since US election on 5 November. 

Regional FX

We expect Asian currencies will continue to get some temporary reprieve as the US dollar consolidates its recent gains. THB (+0.6%) and KRW (+0.4%) have been leading gains across the Asia region so far this week. Thai baht is likely benefiting from improving growth momentum, with Thailand’s Q3 GDP growth rising to 1.2%qoq from 0.8%qoq in Q2. We still look for 2.9% growth this year, though we see downside risk to our 2025 outlook, currently at 3.1%, given potential US tariff hikes in early 2025. However, there’s not much reprieve for CNY and we expect continued depreciation pressure on the currency. The PBOC has gradually set a higher daily USDCNY fixing rate and onshore CNY has also caught up with a weaker offshore CNH.

The key data highlights today include China’s loan prime rates and Bank Indonesia’s policy rate decision. We expect no change to China’s loan prime rates, given the PBOC has kept its 7-day reverse repo rate unchanged, while recent CNY weakness may have reduced the room for further cuts to the loan prime rates. In Indonesia, we expect BI to keep its policy rate unchanged at 6.00% to help stabilize the rupiah as it approaches 16,000 per US dollar. This was despite softening GDP growth (4.95% in Q3 vs. 5.05% in Q2) and manageable inflation (1.7%yoy in October vs. 1.8%yoy in September). We look for USDIDR to stabilize at around 15800-15940 level this week.