China is a winner from the cancellation of all US IEEPA-related reciprocal tariffs, helping to buoy the offshore RMB by 0.8% this week. China’s relative competitive disadvantage against others due to its higher 20% reciprocal tariff is now gone, with all countries facing the same 10% tariff starting this Tuesday. While the US has signalled new trade investigations that could result in Section 301 tariffs against unfair Chinese trade practices, it is unlikely they will be implemented in the short-term, lest they jeopardise Trump’s high-profile visit to Beijing scheduled 31st March. Given lesser trade headwinds, it is no surprise that that the PBOC has been comfortable allowing RMB appreciation. Since the Lunar New Year, the USD/CNY fixing has been calibrated down to around 6.92, marking its lowest level since May 2023.
Bullish RMB sentiment has also supported a recovery in North Asian currencies, with KRW being the best performing currency this week. USD/KRW has eased towards 1430 level given the upswing in the RMB, as well as buoyant Korean equities, with the KOSPI rallying by 49% on a year-to-date basis. Korea is a major beneficiary of the AI spending boom, and we have expected the KRW to strengthen given positive export headwinds, and policy discomfort over KRW weakness. Adding to the slew of policy measures to support KRW, the BOK announced today that it will allow exporters to use FX loans for their domestic working capital, which should result in significant inflows given the size of Korea’s export sector.
JPY is softening against regional trends, with USD/JPY trading back towards 156. Media reports this week suggest that PM Takaichi had expressed concerns over rate hikes to BOJ Governor Ueda, while her two picks to replace outgoing BOJ board members are also considered to be dovish. It is perhaps unwise to speculate if political considerations may influence the well-respected Governor Ueda, and hard data continue to support the case for another BOJ rate hike. Tokyo’s headline inflation for Feb released today shows a rebound to 1.6% y/y, in contrast to expectations for a decline. Underlying inflation pressures is still persistent, with Tokyo’s core-core CPI rising to 2.5% y/y. JPY could also be supported if market volatility picks up, with risks ranging from US-Iran tensions to AI disruptions still pertinent.
Quote of the Day
"I stopped believing in Santa Claus when I was six. Mother took me to see him in a department store, and he asked for my autograph.”
Shirley Temple
February 27 in history
At the seventh Academy Awards ceremony in 1935, six-year-old Hollywood star Shirley Temple received the first-ever kid-sized Oscar.
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