Asia FX Talk - Par for the course

Ahead Today

G3: Eurozone PMI, US Initial Jobless claims, US S&P PMI, US New Home Sales

Asia: Thailand trade, Taiwan industrial production, Bank of Korea, Singapore CPI

Market Highlights

The Federal Reserve Minutes released yesterday were slightly hawkish at the margin relative to the actual meeting. “Various” participants mentioned a willingness to tighten policy further should risks to inflation materialise in such a way, which was in any case par for the course, while the committee also discussed maintaining the current restrictive policy stance for longer to bring inflation down. Meanwhile, “many” members highlighted uncertainty on the degree of restrictiveness on monetary policy given a possible rise in longer-term neutral rates. The Minutes also come on the back of Governor Christopher Waller’s recent speech, where he highlighted the need to see “several” more good inflation prints before being comfortable to ease on policy absent significant labour market weakness, while also striking a balanced assessment on the health of the US economy, highlighting some signs that demand is starting to cool off.

While risk assets fell and the Dollar strengthened somewhat with the Minutes, the broader environment for risk remains decent, not least because Nvidia – the poster child for the AI boom – once again shattered all expectations. Its revenue for the 1^st quarter rose more than 260%, while guidance for the 2^nd quarter were meaningfully above expectations at US$28bn (vs consensus of US$26.8bn). Meanwhile, the pound strengthened as markets reduced bets on Bank of England rate cuts with higher than expected April inflation, even as the government called for an election on 4^th July.

Regional FX

Regional FX

Asian FX markets were mixed on the back of the stronger Dollar, with PHP and THB both falling by 0.3%, USDCNH ground higher to 7.25 with some stalling in equity sentiment, while INR strengthened by 0.1%. The Philippines central bank warned that it will intervene in the currency market after the PHP dropped past the key 58 level, with the Governor saying authorities will step in “when necessary to smoothen excessive volatility and restore order during periods of stress”. Meanwhile, Bank Indonesia kept rates on hold. The Governor highlighted the next policy move will remain data-driven, and that the recent rate hike has halted outflows and shored up the Rupiah. Last but not least, the Reserve Bank of India Board announced a larger than expected dividend to the government of INR2 trillion. Depending on various assumptions, this could help lower the fiscal deficit by 0.2-0.4% of GDP, and could drive some indirect FX flows by improving sentiment on the bond market, notwithstanding uncertainty on the General Election results.