Asia FX Talk - Stronger US data supported US yields

Ahead Today

G3: US Governor Waller Speech, US Initial Jobless Claims, US Continuing Claims

Asia: Philippines Unemployment Rate, Indonesia Foreign Reserves

Market Highlights

US data overnight indicated still decent momentum in the US economy, with JOLTS jobs opening data stronger than expected at 8.1mn up from 7.7mn the previous month. In addition, ISM Services Index was also stronger than expected, rising to 54.1 from 52.1, with the prices paid sub-component spiking to 64.4 from 58.2 in a modestly worrying sign for the near-term path of inflation. The broader context for the US is still one of a normalising labour market still providing policy space for the Fed to cut rates over time, and the data last night showed that leading indicators such as quit rates point towards continued moderation in wage growth. Nonetheless in the near-term, we think the Fed is likely to exercise some caution in part because of policy uncertainty from the new US administration and also because recent data has been somewhat better than expected. US 10-year yields rose closer to 4.68% level – a new local high – while the US dollar strengthened by 0.26%.

In the midst of these external cross currents, Chinese authorities have been managing the pace of RMB weakness, in part by keeping a relatively stable onshore USD/CNY fix, but also by tightening liquidity in the offshore CNH market with further climbs in CNH Hibor rates. We think that CNY should still weaken steadily over time to 7.50 levels by 2Q2025 as Trump implements tariffs, but in the near-term the PBOC is unlikely to allow sharp exchange moves.

Regional FX

Asian currencies were stronger to mixed with TWD (+0.6%), KRW (+0.4%), IDR (+0.3%) and MYR (+0.2%) outperforming. The Philippines CPI came in higher than expected at 2.9%yoy up from 2.5%yoy (and vs consensus for a 2.6%yoy increase). The details show that higher electricity prices together with some components of food prices offset lower rice prices. Post the inflation print, the BSP pledged to maintain a “measured approach to monetary easing” and with the central bank continuing to closely monitor emerging upside risks to inflation notably geopolitical factors. This is even as it noted that the inflation outlook remains within target coupled with well-anchored inflation expectations. Overall, we think that the Philippines central bank still has some space to cut rates gradually and we are forecasting another 75bps of rate cuts through 2025, although external risks including the path of Fed rate cuts places some uncertainty around the exact timing. We think the Philippines peso can outperform regional currencies in the broader context of swift tariff increases by Trump, but still see USD/PHP rising close to 59.70 as the Dollar strengthens per our global team’s expectations. Meanwhile, the 1^st advance estimate for India’s FY2024/25 GDP was in line with expectations at 6.4%, but this was notably slower than the 8.2% seen last fiscal year. We think there is a good chance that this may be revised somewhat lower and see softer growth momentum, weaker capital inflows and a wider current account deficit as supporting our view for USD/INR to rise steadily through 2025