Asian FX on edge ahead of BoJ
Global markets were mostly stronger overnight – with US equities reaching new all-time highs again – but FX markets were more cautious ahead of today’s key Bank of Japan decision.
The USD index saw small gains – with the USD index up 0.1% – but the USD/JPY fell 0.1% as it neared the major technical resistance at 150.00.
In other markets, the AUD/USD fell 0.5% and NZD/USD lost 0.6%.
The USD/SGD gained 0.1% while the USD/CNH bucked the trend and fell 0.1%.
A recent slowing in inflation and wage growth means the Bank of Japan might be less keen to hike rates – and could weigh on the Japanese yen.
GBP boosted by stronger data
The UK’s Office for Budget Responsibility released a quarterly profile last month for the headline public sector (PSNB-ex) and cash central government (CGNCR-ex) budget deficits after the November Budget was released. Its December projections were £14 billion and £18.3 billion, respectively, and there is little reason to believe otherwise.
Looking ahead, however, a combination of our assessment of lower growth than the OBR anticipates and election-induced fiscal easing in the March Budget (and maybe in the Autumn Statement later in the year, depending on the time of the election) might entail greater deficits.
The recent resilient UK data supports elevated BoE rates with markets not looking for a cut in UK rates until June.
GBP/USD is currently seen as short-term positive, sitting at the 21-day moving average and above its 200-day long-term moving average.
The GBP has been stronger in other markets with the AUD/GBP recently hitting four-month lows.
Singapore inflation due
Singapore core CPI inflation, which is mostly driven by the price of food and services, will only slightly decrease to 3.1% y-o-y in December from 3.2% in November. This suggests that core inflation increased sequentially from 0.1% in November to 0.4% m-o-m sa. Because automobile prices are rising less and certificate of entitlement (COE) premiums are down, headline inflation should decrease even more, from 3.6% to 3.1% year over year.
We anticipate that industrial production (IP) growth will surpass the 1.0% increase shown by the advanced Q4 GDP estimate, rising to 3.1% y-o-y in December from 1.0% in November. The increase in electronics output due to global tech upcycling probably had a role in the uptick. This suggests that sequential IP growth changed from -7.8% in November to 3.7% m-o-m sa.
Easier policy will probably be the next step, but when it happens will depend on data from the domestic labor market, the effect of increased admin and GST prices, and how quickly DM central banks can shift to easier policies.
After a recent push to two-month highs, USD buyers might look to the 21-day moving average around 1.3350 in USD/SGD.
USD stronger in Asia ahead of BoJ
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 22 – 27 January
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.
