Ahead Today
G3: Germany CPI, Japan industrial production
Asia: Malaysia industrial production, Thailand international reserves, India CPI
Market Highlights
The US dollar continued to soften following the recent FOMC meeting, with the broad DXY index extending its decline. EURUSD regained ground, moving above the 1.1700 level, while downward pressure on the yen has eased somewhat.
On the macro front, US initial jobless claims rose to 236,000 for the week ended 6 December, up from 192,000 in the prior week, suggesting some cooling in the labour market. Meanwhile, the US trade deficit narrowed to $52.8 billion in September from $59.3 billion deficit, marking the smallest deficit since mid-2020.
In trade developments, Mexico has approved new import tariffs on Asian economies without trade agreements, effective next year. Tariff rates will range from 5% to 50%, targeting products such as auto parts and textiles. China accounts for roughly 21% of Mexican imports, second only to the US at 42%. That said, exports to Mexico represent only a small share of total exports for China and several other Asian economies. As a result, the direct impact is likely to be contained.
Moreover, Asian economies have been diversifying their export destinations to new markets, alongside increasing intra-Asia trade, which could help partially offset the impact from Mexican tariffs.
Regional FX
Asian currencies broadly strengthened against the US dollar amid a softer dollar backdrop. The BSP cut rates by 25bps, but signalled that rate cuts are ending, lending support for PHP. However, the Indian rupee remains under pressure, with USDINR rising 0.4% and trading above the 90.00 level, reflecting ongoing uncertainty over a potential trade deal with the US. That said, India’s inflation is expected to stay subdued, supported by GST cuts and lower energy prices.
In Thailand, Prime Minister Anutin plans to dissolve parliament and call for a general election, adding to political uncertainty at a time of slowing economic growth and renewed cross-border tensions with Cambodia. Meanwhile, the government is reportedly working to ensure timely budget disbursement to avoid delays that could weigh on sentiment. Nonetheless, the Thai baht has been resilient amid a softer US dollar, though we think upside could be contained by weak domestic demand and the impact of higher US tariffs on Thai exports.