Asia FX Talk · Regional FX faces a resilient dollar and high US yields

Key arguments

• Softer US inflation (PCE 3.4% y/y) tempered Fed tightening expectations at the front end, steepening the 2s10s curve by ~9bp since Tuesday, but a December hike remains fully priced.
• The dollar stays firm above DXY 101, keeping pressure on Asian currencies amid elevated US yields.
• MUFG remains cautious on IDR: inflation may rise to 3.3% y/y, nearing BI's target ceiling, and the August trade balance could swing to deficit on higher oil imports.
• MUFG remains cautious on THB: higher oil prices worsen terms of trade, tourism receipts soften, growth is slow, fiscal space limited, and the BoT policy rate at 1.0% offers little support.

Corresponding source evidence

1. This leaves Friday’s nonfarm payrolls report as the next key test for the Fed outlook and US yields.
2. The official manufacturing PMI returned to expansion at 50.1, while non-manufacturing rose to 50.2 from 49.0.
3. South Korea’s August industrial production fell 4.8%mom, although the weakness was largely driven by a strike-related fall in auto production, suggesting caution in interpreting the headline decline as a broader deterioration in Korea’s manufacturing cycle.