ASIA FX: SEA FX Mostly Firmer Versus USD, IMF May Reclassify INR FX Regime
In South East Asia FX, the bias has mostly been for a weaker USD. Gains have been modest though, ahead of US data latter (while US yields have also edged up, retracing some of Monday's fall). In the equity space, trends are mixed, volatility continues in the tech related space, while some SEA markets are weaker (mainly Philippines and Indonesia, while Thailand is higher). USD/INR hasn't reacted much to reports that the IMF may change how the country's FX regime is classified.
- USD/IDR is back near 16660/65, close to earlier lows in Nov. Prospects of a potential Fed cut in Dec has likely aided sentiment (not withstanding the nudge higher in US Tsy yields today). Offshore investors have also been consistent buyers of local equities so far this month, while there are also signs of improving offshore debt inflows. A clean break lower could see the 16600 level targeted.
- Spot USD/THB is lower, back near 32.35, with the pair continuing to find resistance above 32.50. We did see a wider than expected customs trade deficit earlier, as exports slowed. This may prompt fresh BoT easing, but FX sentiment hasn't been impacted.
- USD/MYR continues to be biased lower, last near 4.1335. Earlier dips under 4.1300 were supported, but the pair is nearing an oversold technical position once again. USD/SGD is little changed, holding close to 1.3045/50.
- USD/INR is down slightly but remains within recent ranges, last under 89.20. BBG notes the IMF is likely to change the description of India's FX regime. Via BBG: "The new description of the country’s de facto currency regime is likely to include references to a crawling peg, the people said, asking not to be identified discussing private matters. " The new RBI regime, since late last year, has allowed greater INR volatility, but still keeps the pace of rupee depreciation in check.
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FED: MNI Fed Preview - October 2025: QT, Or Not QT
MNI's preview of the October FOMC has been published - Download Full Report Here
- The Federal Reserve is overwhelmingly expected to cut the funds rate by 25bp for a 2nd consecutive meeting on October 29, bringing the target range to 3.75-4.00%.
- This will again be framed as a risk management cut, with the limited data available since the September meeting not disconfirming that the shift in the balance of risks had tilted toward labor market downside.
- Dissent to this decision should once again be limited to Gov Miran in favor of a 50bp cut.
- With limited new developments and official data to opine on, Chair Powell’s press conference will be eyed for affirmation that a December cut remains on track, as signalled by the most recent Dot Plot.
- He’s unlikely to give much away, but it would be surprise given the lack of data and relevant developments if he suggested that a further 2025 cut was in any greater doubt than it was 6 weeks earlier.
- Instead, we think focus in terms of action at this meeting will be on the balance sheet, with the Fed likely to announce an end to quantitative tightening amid diminishing reserve levels and nascent evidence of funding market pressures.
- We will also be watching for any news on the Fed’s communications framework, with an updated “Dot Plot” potentially unveiled at some point by year-end.
MNI’s separate preview of sell-side analyst summaries to follow on Monday Oct 27
RATINGS: Moody's Lowers France's Outlook To Negative, Maintains Aa3 Rating
Moody's has lowered its outlook on France to negative from stable.
- Moody's was expected to at least lower the outlook, so this is not a surprise - there had been some risks perceived of a downgrade to A1 (from Aa3) in the domestic and foreign currency long-term issuer and domestic-currency senior unsecured ratings.
- Per the Moody's release: "The decision to change the outlook to negative reflects the increased risk that the fragmentation of the country's political landscape will continue to impair the functioning of France's legislative institutions. This political instability risks hampering the government's ability to address key policy challenges such as an elevated fiscal deficit, rising debt burden, and durable increase in borrowing costs, thus leading to a more rapid weakening in France's key fiscal metrics than we currently expect."
- Both S&P and Fitch have already downgraded France’s sovereign rating to the single-A bucket this year.
USDCAD TECHS: Corrective Pullback
- RES 4: 1.4200 Round number resistance
- RES 3: 1.4167 50.0% retracement of the Feb 3 - Jun 16 bear leg
- RES 2: 1.4111 High Apr 10
- RES 1: 1.4080 High Oct 16 and the bull trigger
- PRICE: 1.4016 @ 16:33 BST Oct 24
- SUP 1: 1.3979/3907 20- and 50-day EMA values
- SUP 2: 1.3829 Bull channel base drawn from the Jul 23 low
- SUP 3: 1.3769 Low Sep 19
- SUP 4: 1.3727 Low Aug 29 and a bear trigger
USDCAD has pulled back from its recent highs. The trend condition is bullish and a move lower is considered corrective. Moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 1.4111, the Apr 10 high, and further out, scope is seen for an extension towards 1.4167, a Fibonacci retracement. First key support lies at 1.3907, the 50-day EMA. Support at the 20-day EMA lies at 1.3979.
