Ahead Today
G3: US initial jobless claims and advance Q3 GDP estimates; ECB and BOJ policy rate decisions
Asia: Philippines trade, Singapore unemployment rate
Market Highlights
As widely expected, the Fed cut rates by 25bps, as policymakers see growing risk to employment. The Fed also announced an end to quantitative tightening starting 1 December. However, Fed Chair Powell struck a more cautious tone during the press conference, saying that a December rate cut is “far from a foregone conclusion” and that no decision has been made for the upcoming meeting. In response, markets have scaled back expectations for a December cut.
In Japan, we expect the Bank of Japan to keep the policy rate at 0.5%, with new Prime Minister Takaichi’s advisor suggesting that an October hike is too early. Markets have pared back rate hike expectations to next year. While Fed rate cuts may support the yen, a potentially slow pace of Japan’s rate normalization implies yen appreciation could be modest.
Elsewhere, the constructive trade discussions between US and China in Malaysia over the weekend signals for a potential trade truce, paving the way for a favourable outcome in the bilateral meeting between Trump and Xi today in South Korea. The ASEAN summit also yielded positive results, with Trump granting tariff exemption for select products from Malaysia, Thailand, and Cambodia. These developments could help lend some support for emerging Asian currencies, amid recent US dollar strength.
Meanwhile, Japan’s $550bn investment commitment to the US will include investments in strategic sectors such as energy infrastructure, AI, electronics, automotive and utilities. These underscore deepening US-Japan ties and there could be longer-term implications for capital flows.
Regional FX
The US dollar strengthened following a somewhat hawkish rate cut by the Federal Reserve, weighing on regional currencies. High-yielding currencies such as the Indonesian rupiah (IDR), Indian rupee (INR), and Philippine peso (PHP) could stay under pressure. In particular, we maintain a cautious stance on the IDR. Fiscal policy uncertainty and a pivot toward looser monetary conditions continue to dampen investor sentiment. Sovereign risk premiums remain elevated relative to pre-August protest levels, while the 10-year yield spread versus US Treasuries could be insufficient to attract sustained foreign capital inflows. Rising domestic inflation and a sharp slowdown in credit growth, especially among small and medium enterprises, add to the downside risks.
In contrast, the CNY is expected to remain resilient, supported by the prospect of a US-China trade truce and ongoing domestic policy stimulus. A stable or stronger CNY tends to have positive spillover effects across the region. The Malaysian ringgit (MYR) has already responded favourably, breaking below the 4.2000 level against the dollar. This move reflects improving investor confidence in Malaysia’s external outlook, further buoyed by recent tariff exemptions granted at the ASEAN summit.