ASIA FX: USD/CNH Testing Sub 7.0200, KRW Lags, BoT/FinMin Meet To Discuss THB
USD/Asia pairs are mixed despite continued USD weakness against the majors. The USD BBDXY index continues to extend lower, off another 0.20% to the low 1203 region (with USD/JPY back under 156.00 as intervention rhetoric/threats rise). USD/CNH is testing under 7.0200, as onshore CNY spot gains accelerate. The won continues to lag broader USD softness though. TWD is higher but within recent ranges, while in SEA, SGD and MYR are higher, while IDR is steady. Focus for THB is on a meeting later between BoT and FinMin to discuss the baht.
- USD/CNH has tested under 7.0200 in recent dealings, keeping risks of a test at 7.00 alive before year end. Onshore spot gains have accelerated since USD/CNY broke under 7.0400, which is likely aiding CNH sentiment. The USD/CNY fixing was set well above market forecasts but the downtrend in the fixing continues and spot CNY is only modestly stronger relative to the fixing level.
- USD/KRW spot is at fresh highs near 1484 in latest dealings, completely ignoring this fresh round of USD weakness. Focus remains on the authorities response to weaker won levels, with measures to date not enough to ward off negative won sentiment. USD/KRW price action still suggests strong onshore demand for overseas assets with the authorities highlighting the strong outflows to US asset markets in 2025. USD/TWD is down a little last under 31.50, well within recent ranges.
- USD/THB got to lows of 31.09 earlier, but sits back at 31.165 in latest dealings (now little changed for the session). Headlines crossed earlier that a meeting between the BoT and FinMin will take place at 0630GMT today to discuss the baht. The market may be mindful of potential policy steps, with the authorities looking to curb baht gains.
- USD/MYR has broken under 4.0700 and remains oversold on RSI (14) but is showing little sign of turning around. USD/SGD is under 1.2870, fresh lows back to late Sep last year. Nov CPI data was close to forecast, headline CPI at 1.2% (mkt forecast was 1.3%).
- USD/IDR is holding higher, with dollar demand a potential factor ahead of year end. We were last around 16780, leaving IDR an underperformer in Dec to date.
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RATINGS: Moody's Upgrades Italy To Baa2 From Baa3, Still A Notch Below Others
The Moody's upgrade to Italy's credit rating announced late Friday was the first from the agency since 2002 but shouldn't be considered a major surprise. Among the 3 major ratings agencies, Moody's had the lowest rating on Italy - by two notches (Fitch and S&P both BBB+).
- So this upgrade to Baa2 from Baa3 represents something of a closing of that gap rather than a major breakthrough for Italy.
- From the release:
- "The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan (NRRP). It also points to prospects of further policy actions supporting growth and fiscal consolidation beyond the plan's deadline in August 2026. As a result, we expect that Italy's high government debt burden will gradually decline from 2027 onwards."
FED: Heading Into Its Final Weeks, QT Pace Remains At $20B/Month (2/2)
On the asset side of the Fed balance sheet, we saw a $25B drop in assets, of which just $2B could be attributed to QT in one of its final weeks (ends Dec 1).
- Instead it was a $6B drop in dealer repo operations vs a week earlier, and $17B in "other" areas that aren't related directly to monetary policy and typically don't have any significant impact on the size of the balance sheet (such changes are largely due to items such as bank premises, accrued interest, and other accounts receivable.)
- Discount window takeup edged up $0.3B to $6.1B but remains relatively low.
- QT has totaled just under $21B over the last month, around the expected pace, though as noted this will flatline in December with a pickup in net bills as MBS proceeds are rolled over into T-bills.
LOOK AHEAD: US Week Ahead: Retail Sales, PPI & Claims Headline Thanksgiving Week
A Thanksgiving-condensed week sees data highlights from delayed retail sales and PPI reports for September on Tuesday (Nov 25) before a Wednesday release for weekly jobless claims (Nov 26). Aside, the Fed’s Beige Book should also offer another important update on Wednesday for latest liaison reporting, with no Fedspeak currently scheduled around the holiday and the FOMC media blackout due to start on Saturday, Nov 29.
- As we regularly comment in this weekly publication, Redbook and Chicago Fed CARTS indicators point to solid nominal growth in retail sales, something broadly reflected in analyst consensus for the release.
- PPI inflation will offer a useful albeit not overly timely update on input cost pressures.
- Jobless claims will be watched particularly closely, both for latest initial claims for signs of layoffs and a notable update for continuing claims. The latter covers the payrolls reference period for November and will be an important reference point for FOMC members trying to get a sense of latest unemployment rate clues with the next payrolls reports coming after the Dec 9-10 FOMC decision (going into it with this week’s 0.12bp rise to 4.44% back in September).
