Global overview
FX markets remained positive on Wednesday as hopes for a pause in US rate hikes and solid US data boosted sentiment. All eyes are on today’s meeting between US President Joe Biden and Chinese President Xi Jinping on the sidelines of the APEC summit in San Francisco.
Markets stay buoyant
Financial markets remained in a positive swing over the last 24 hours driven mainly by this week’s cooler than expected US inflation report.
The slowdown in US inflation caused markets to speculate that the Federal Reserve might be at the end of their rate-hiking cycle.
The view caused US shares to gain, the greenback to fall, and risk-sensitive currencies like the Australian and New Zealand dollars to push higher.
Overnight, US economic data remained positive, with October retail sales and New York’s Empire State manufacturing index both better than expected.
Additionally, the AUD and NZD both received a boost as markets hoped Chinese President Xi Jinping’s first visit to the US since 2017 was a sign of thawing relations between the two superpowers.
USD/JPY remains positive
In other markets, most major currencies were lower, with European markets dragged down by a fall in the British pound.
The GBP/USD fell 0.6% as October annual inflation fell from 6.7% in annual terms to 4.6%. The euro also fell.
The Japanese yen also fell ahead of today’s export numbers. We project a 2.1% year-over-year increase in nominal exports and a 12.0% year-over-year decrease in nominal imports for October 2023. We project a nominal trade deficit of ¥32.6 billion. After accounting for seasonality and inflation, we project a real trade surplus of ¥800.2 billion, a 0.7% increase in real imports, and a 0.9% gain in real exports m-o-m.
In Japan’s October manufacturing PMI, the new orders index was down marginally at 47.0, and we believe associated data provide a mixed picture. The manufacturing PMI data for October in the US increased little from the previous month while falling in China and the Eurozone, indicating that manufacturing activity is still stagnant among international indices. Positive economic signs included the lowering of the year-over-year fall in Japanese imports in trade figures that have previously been made public for China, South Korea, and Taiwan.
On USD/JPY, a breach below 148.95 – at the 50-day moving average – would be a negative sign for the pair but for now, the bias remains positive.
PHP in focus
The Philippines peso will be watched today with a key central bank decision due. As CPI inflation fell sharply in October to a much lower-than-expected 4.9% y-o-y, we expect the Bangko Sentral ng Pilipinas (BSP) monetary board to leave its policy rate unchanged at 6.50%. The BSP is unlikely to quickly follow-up with another hike after its 25bp off-cycle hike just three weeks prior.
Nevertheless, we believe the BSP will continue to speak in a hawkish manner, assuring us that it is still alert to inflation threats and prepared to raise rates again if necessary. Q3 GDP growth should continue to reinforce this tone as well. We give our on-hold estimate a likelihood of 75%, while another 25bp rise has a 25% possibility. The latter is predicated on the BSP’s continued worry that inflation would stay over target, noting the need to better anchor inflation expectations.
PHP has benefited from the oil prices being reasonably well controlled despite the tensions in the Middle East with the currency mainly stronger but this strength might not continue with our view currently neutral.
Aussie, kiwi extend gains
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 13 – 18 November
All times AEDT
Have a question? [email protected]
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
