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The emerging market Asian currencies are expected to advance further amid a sustained risk-friendly sentiment, on the back of 1) the Fed’s dovish stance and regional central banks’ future stimulus measures; 2) ongoing US-China trade optimism with the phase-one trade deal due to be signed Wednesday and; 3) a de-escalation of US-Iran tensions, according to the latest research report from Scotiabank.
The US economy added fewer-than-expected 145,000 jobs in December with a 2.9% annualized gain in average hourly earnings. The overall pace of job growth has been slowing in the US economy (Chart 1), along with softening wage growth.
Earlier on January 3, the Institute for Supply Management (ISM) said its US manufacturing index slid to 47.2 in December from 48.1 the prior month, marking the fifth straight contraction and the softest reading since June 2009.
It will finally erode the power of US household consumption and continues holding down the nation’s inflation, prompting the Fed to maintain its dovish stance at least in the first half of 2020.
In addition, the US central bank will keep expanding its balance sheet into the second quarter this year. Further, the BLS said in a statement dated on December 10, 2019 that unit labour costs in the nonfarm business sector increased 2.5 percent q/q in the third quarter of 2019, reflecting a 2.3 percent increase in compensation per hour and a 0.2 percent decline in productivity, the report added.
The costs, calculated as the ratio of hourly compensation to labour productivity, can be used as an indicator of inflationary pressure on US producers.
Moreover, US core PCE inflation that is the Fed’s favourite inflation measure has been consistently staying below US core CPI inflation.
"US 5-year 5-year forward breakeven inflation rate is likely to remain subdued in the foreseeable future as well. We maintain our short dollar positions versus the CNH, INR, IDR, KRW, MYR and TWD, and still expect the THB to underperform versus the KRW and TWD going forward. We also stay with our short JPY/KRW cross position," Scotiabank further commented in the report.
