Written by Steven Dooley and Shier Lee Lim
USD lower in Asia on PCE, BoJ
The greenback was lower after last night’s inflation report was in line with expectations, but the USD recovered later in the session.
The personal consumption and expenditure number – PCE – fell from 2.6% in December to 2.4% in January. The core number, which strips out more volatile items, fell from 2.9% to 2.8%.
The USD was weaker in Asia as commentary from the Bank of Japan suggested the Japanese central bank still intends to raise rates in the first half of this year.
The USD/JPY fell 0.5% while the USD/CNH lost 0.2%.
However, the NZD/USD lost 0.2% as markets continued to pressure the kiwi after this week’s Reserve Bank of New Zealand decision.
The AUD/USD was flat.
China PMI due
In February, we anticipate that the official manufacturing PMI will stay in contractionary territory at 49 (January: 49.2). This is because of the Emerging Industries Purchasing Managers’ Index (EPMI)’s weakness and the business activity’s later-than-usual return. An early warning system for the official PMI, the EPMI, fell by 5.3 percentage points from 50.8 in January to 45.5 in February.
In contrast, when the Lunar New Year holiday also happened in February in 2018, 2019, and 2021, the PMI decreased by 2.6 percentage points on average. Since most migrant workers left their jobs to spend the first Lunar New Year vacation that is undisturbed by the pandemic, business activity may also restart later than normal.
From a tactical standpoint, we are still slightly positive on CNY.
Indonesian inflation due
Indonesian inflation is due today. As administered prices stayed steady, we anticipate headline inflation to slightly increase to 2.7% y-o-y in February from 2.6% in January due to persistently high food costs, particularly for rice and red chilis.
A further increase in core inflation to 1.8% y-o-y from 1.7% is anticipated due to higher demand conditions during the election season.
With commodity prices falling to pre-Covid levels, the external picture is becoming worse. BI predicts a deficit in 2024 for CA, compared to a flat 2023. On IDR, we have a modest negative view.
JPY gains after BoJ
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 26 February – 2 March
All times AEDT
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*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.
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