Ahead Today
G3: US durable goods orders, Japan leading index
Asia: Singapore industrial production
Market Highlights
The broad US dollar index (DXY) remains under downward pressure, having slipped below the 98.00 handle. The index now sits at a technically pivotal zone - any further deterioration risks opening the door to an extended phase of USD softness.
The latest leg lower in DXY has been driven largely by the sharp decline in USDJPY. Although the Bank of Japan kept its policy rate unchanged at 0.75% last Friday, it upgraded both its growth and inflation outlook for FY2026. While policymakers stopped short of signalling an early rate hike, the revision to its growth-inflation outlook has reinforced the possibility of further BOJ tightening in the coming months. Compounding the move, Japanese officials have refrained from clarifying whether FX intervention has occurred, leaving markets wary. The recent price action in USDJPY underscores the asymmetry in risks: intervention concerns and a softer USD backdrop could quickly unwind the yen weakness seen in recent weeks. Overall, the balance of risks may point toward USD vulnerability and heightened two-way volatility in USDJPY as markets navigate intervention uncertainty and evolving policy expectations around BOJ policy stance and Japan Prime Minister Takaichi’s fiscal policy.
Another intriguing development is the rise in crude oil, which may hint at expectations of geopolitical developments - possibly involving US military posture in the Middle East – that could shift risk premia abruptly. Geopolitical risk has increased after US President Trump ordered additional US naval assets toward the Middle East, reviving speculation of potential military action against Iran.
Regional FX
Asia FX broadly strengthened amid broad US dollar weakness, except for the INR, which has fallen towards the 92.00 level against the US dollar. We stay constructive on the SGD and MYR, with both currencies benefiting from improving CNY sentiment, while a softer USD backdrop should gradually ease external pressure across the region.
In Singapore, both headline and core inflation were unchanged at 1.2%yoy in December. Inflation appears to be bottoming out. Coupled with resilient growth and the risk of higher inflation due to rising geopolitical tensions, MAS is likely to keep its policy stance steady, helping to support SGD. Notably, SGD is at a pivotal technical level, where it could gain toward 1.2600-1.2650 level should the DXY weaken further.
In Malaysia, the ringgit briefly strengthened below the psychological 4.00 level against the US dollar, supported by dollar weakness and improved regional sentiment. The THB has also largely held on to gains despite a weakening domestic growth backdrop. This has been underpinned by rising gold prices and exports expanding 16.8%yoy in December, which sharply narrowed the trade deficit. While authorities have tightened monitoring of gold related FX transactions, this has had limited impact on THB so far.
The IDR also saw notable moves, retracing its losses on the back of USD softness and Bank Indonesia’s emphasis on currency stability. However, downside risks still persist, including the potential relaxation of the 3% fiscal deficit cap and broader geopolitical uncertainty, which may continue to limit the scope for sustained IDR appreciation.