Asia FX Talk - Resilient US data and geopolitics

Ahead Today

G3: Germany Zew Expectations, US Housing starts, US Industrial Production, Fed Vice Chair Jefferson speaks

Asia: China 1Q GDP, China retail sales, China industrial production

Market Highlights

Strong US data coupled with increasing geopolitical tensions led to further spikes in 10-year US yields above 4.6%, meaningful declines in equity markets, coupled with a somewhat stronger US Dollar. USDJPY rose above 154, leading to more consternation among Japanese officials.

US retail sales rose by more than expected at 0.7% while the previous month was revised higher. The control-group sales, which is used to calculate GDP and excludes items such as autos, jumped 1.1%, the most since last year. The details were somewhat mixed however, with strong sales in e-commerce with some weakness in electronics and furniture. With the retail sales print, the Atlanta Fed GDP nowcast rose to 2.8% from a previous estimate of 2.4%, indicating still strong momentum in the US economy for now. New York Fed President John Williams said that the Fed will need to start the process at some point to bring interest rates back to more normal levels, and that his view is for this to start sometime this year.

Meanwhile, top Israeli military officials including Israel’s Defence Minister said Israel has no choice but to respond to Iran’s drone and missile attack, although the exact nature and scope of the response is unclear. Regional and global powers are continuing to try to prevent the conflict from broadening out to a broader conflagration.

Regional FX

Asian FX markets traded on the backfoot with the stronger US Dollar. Key underperformers include KRW (-1.1%), PHP (-0.55%), coupled with THB (-0.6%) and VND (-0.65%). The PBOC kept the 1-year Medium-Term Lending Facility Rate unchanged at 2.50%. Markets will focus on China’s 1Q GDP coupled with monthly data such as retail sales and industrial production out today, to gauge if there are any further signs of green shoots in China’s economy. India’s goods trade deficit was smaller than expected at US$15.6bn down from US$18.7bn, although this was accompanied by a likely smaller than expected services export growth of -6.6%yoy. We remain constructive on INR notwithstanding the stronger Dollar, given a manageable current account deficit, bond index inclusion inflows, coupled with the willingness and ability of RBI to intervene using its FX reserves to curb excessive currency depreciation. Meanwhile, the Philippines central bank said he sees rate cuts as more likely in 2025, with a 50% chance that inflation may breach target for a third year.