Written by Steven Dooley and Shier Lee Lim
Greenback falls from three-month highs
The US dollar eased back from three-month highs overnight following a strong rally in recent days sparked by a bumper jobs report and hawkish commentary from Federal Reserve chair Jerome Powell. More broadly, US data has seen a strong resurgence in 2024 so far.
However, the greenback eased overnight, with the EUR/USD up 0.1%, the GBP/USD up 0.5% and the USD/JPY down 0.5%.
Most notably, Cleveland Fed president Loretta Mester kept the door open for rate cuts overnight, but didn’t commit to any potential timing.
The Australian dollar was the best performer after yesterday’s Reserve Bank of Australia decision indicated the RBA remained worried about inflation – with headline annual inflation still at 4.1%.
RBA governor Michele Bullock said “We have made good progress, but there is more work to be done. The job is not done.”
According to ASX, financial markets don’t see an RBA rate cut until August. Any delay to rate cuts in Australia – especially as speculation swirls around potential cuts in the US and Europe –might support the AUD.
The AUD/USD gained 0.6%.
US trade balance due
The US dollar’s recent solid run might be supported by its improving trade position. Tonight’s US trade deficit is forecast to decrease from -$63.2 billion in November to -$61.5 billion in December.
In December, the advance goods trade deficit shrank from -$90.3 billion in November to -$88.5 billion. In accordance with nonresidents spending more on services in the US, and US residents spending less overseas in December compared to November, we also anticipate that the services trade surplus grew in December.
Even while there are still some rather good stories that might aid certain local APAC FX, the USD should continue to be largely supported in the near future.
Thai policy meeting today
In line with its guideline that the policy rate is at its neutral level and “appropriate for supporting long-term sustainable growth,” we anticipate the Bank of Thailand (BOT) will unanimously decide to keep its policy rate at 2.5%.
However, we anticipate a slightly dovish slant, with BOT probably cutting its GDP growth estimate for 2023 from 2.4% to 2.0% in light of the significant drop in manufacturing production in Q4.
We anticipate that the BOT will reduce its GDP growth prediction for 2024 from 3.8% to 3.4%, most likely due to the policy’s delayed implementation.
The BOT is expected to reduce its 2024 headline inflation projection to 1.5% from 2.2% and its core inflation forecast to 1.2% from 1.5%, in line with its less optimistic outlook for GDP and the dismal January CPI outturn. Regarding policy guidance, we anticipate that the BOT will continue to state that it will consider the growth and inflation outlook when determining its stance, possibly allowing for a reduction.
We still anticipate that BOT will make its first of two planned 25bp reduction in June and another in August, although we are aware that there is a chance the cut may be made in April.
We are neutral on THB. Although we still don’t think Thailand’s current account will return to pre-Covid levels, we do anticipate it to continue improving this year. In 2023, tourism underperformed not because fewer people traveled, but rather because average expenditure decreased.
USD at highs versus CNY, HKD
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 5 – 10 February
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.
