Week Ahead FX outlook:
Key FX views:
Across Asia, the focus will be on signs of stabilisation in China. China’s RatingDog PMI readings due on 5 January could indicate modest expansion, while CPI inflation could remain somewhat positive. These data points should reinforce market expectations of continued policy support from Chinese authorities to sustain growth amid a shifting global trade environment. Notably, USDCNY has moved below the key psychological level of 7.00, aided by PBOC’s decision to lower the daily USDCNY fixing rate.
In Southeast Asia, Indonesia’s CPI could stay relatively firm at around 2.8%yoy, underpinned by food price inflation, putting a drag on the rupiah. However, Thailand’s CPI is likely to stay negative, reflecting weak oil prices and demand-side pressures, providing room for BoT to cut rates to 1.00% in Q1 2026. Meanwhile, Vietnam’s GDP is likely to hold strong at around 7% for 2025, underscoring robust growth momentum supported by resilient export performance.
Globally, the week ahead will be dominated by key US data releases that will shape expectations for fed funds rate, with implications for Asian FX. The core PCE price index and employment reports will be in focus. The ADP employment report could show a modest rebound in December after November’s contraction, while the nonfarm payrolls (due on 9 January) could recover following a sharp drop in November. The ISM surveys will provide additional insight into US economic momentum, with manufacturing activity likely to remain in contractionary territory and services activity in expansionary mode. Overall, market expectations for further Fed rate cuts should remain intact, with risks skewed toward more dovish repricing if US labour market data disappoints. This backdrop could cap USD strength, broadly lending support for Asian currencies.
CNY strengthens, trading below the midpoint of PBOC’s daily fixing rate against the US dollar
