Asia FX Talk - Soft US jobs report to give Asia currencies a breather

Ahead Today

G3: US senior loan officer opinion survey, eurozone composite and services PMI

Asia: China Caixin PMI, Indonesia GDP, India composite and services PMI, Taiwan foreign reserves

Market Highlights

US Treasuries rallied and the broad US dollar index sold off following a soft April US jobs report. Nonfarm payrolls rose 175k in April, down from a revised 315k in March and below Bloomberg consensus of 240k. The US unemployment rate inched up by 0.1ppt to 3.9%, while wage growth slowed to 3.9%yoy from 4.1% in March. The ISM services index fell to 49.4 (below 50 indicates contraction) in April from 51.4 in March, the first contraction since December 2022 and below market expectation of 52. But the ISM services prices paid index rose to 59.2 from 53.4 in March.

Market pricing now indicates nearly 2 US rate cuts this year, starting in November. And the UST 2s-10s curve saw a bit of bull-flattening last Friday. EUR/USD gained 0.3% on the back of USD weakness and positive economic data surprises from Europe. USD/JPY fell 0.4% to 153, after touching a nadir of 160 not too long ago. Markets have now shifted their focus towards whether yen intervention can succeed in turning the tide. Our analysis suggests it could. In the two yen buying intervention in 1998 and 2022, USD/JPY is lower in both times over 6 months; down in one and unchanged in one over 12 months; and down in 1998 over 2 years.

Regional FX

Asia FX gained for the second straight session last Friday on the back of USD weakness resulting from soft US jobs data. KRW and IDR were relative outperformers, while the CNH, INR, and VND underperformed.   

Indonesia’s Q1 GDP is likely to show growth stayed solid at 5%yoy in Q1. Domestic demand indicators picked up in Q1, while the manufacturing PMI rose to 54.2 in March from 52.7 in February, marking the 31st straight month of expansion in factory activity, mainly driven by strong output and new order growth. Election related spending also likely supported Q1 growth.

Bank Indonesia sold a record high IDR36.26tn worth of rupiah securities (SRBI) in an auction on 3 May, with total incoming bids at IDR37.2tn, mostly 12-month notes (IDR19.68t) at an attractive yield of 7.47%. SRBI auction frequency will be increased to twice per week to help attract foreign inflows.

Thailand yields underperformed. 1-year NDOIS rose 2bps as inflation turned modestly positive (+0.2%yoy) in April versus Bloomberg consensus of -0.2%.

Meanwhile, markets will continue to watch for any follow-through of China’s plans to step up macro policy support, which was announced last week.