Ahead Today
G3: Eurozone Sentix Investor Confidence
Asia: Taiwan Trade, Malaysia industrial production
Market Highlights
The US Dollar weakened by 0.8% led by movements in EUR and JPY, with USD/CNH also breaking below 6.92, with strong risk sentiment in markets outside of the US.
The key drivers of Dollar weakness include a commitment by Japan’s Prime Minister Takaichi on fiscal sustainability, coupled with news that Chinese regulators are advising financial institutions to rein in their holdings of US Treasuries. In particular, PM Takaichi acknowledge concerns among investors over the plan to cut the sales tax on food items for two years, while reiterating plans to avoid issuing bonds to fund the measure. Overall, she said the key is to also steadily reduce Japan’s debt-to-GDP ratio, look for other venue streams or savings including revision of subsidies and tax exemptions, while also ultimately move towards longer-term system of supports such as tax credit and cash handouts that would increase household take-home pay to combat inflation pressures. Meanwhile, Bloomberg News reported that Chinese regulators communicated verbally to some of the nation’s largest banks in recent weeks to limit purchases of US government bonds and instructed those with high exposure to pare down their positions.
USD/JPY in particular fell below the 156 handle at one point. This had a positive spillover impact to Asian currencies in our region which are sensitive to JPY movements, including KRW, SGD, THB, and to a smaller extent the likes of TWD and PHP. Moving forward, our global team has kept their expectations for USD/JPY to move down below the 150 level over time, with an expectation for the Bank of Japan to potentially hike rates in the April meeting and with fiscal sustainability also key here.
Local factors were also key, with a better than expected result by the Bhumjaithai Party in the recent Thailand Elections, capturing up to 194 seats out of 500. Building a coalition is still needed, but the key change at the margin is that there is relative political stability in Thailand, and the outperformance of the Thai baht makes sense to our minds in the near-term.
