Asian FX on the back foot

  • May 27, 2024

Week Ahead FX outlook:

Asian FX and risk assets were generally weaker last week, on the back of hawkish Fed speak, coupled with fading positive sentiment from China’s property market measures. From a global perspective, Fed Governor Christopher Waller highlighted that he needed “several” more good inflation prints before recommending to ease on policy, although he also pointed to signs that high rates are doing their work in weighing on demand. Meanwhile, China’s Northbound equity inflows slowed, Chinese equities fell more than 2%, while USDCNH inched up closer to 7.26 with lack of fresh policies on property support.

There were also some idiosyncratic stories in Asia. The Indian Rupee was a key outperformer during the week rising 0.3%. This was on the back of the larger than expected RBI dividend to the government which increases fiscal space for the incoming government, together with possible reduced jitters on the upcoming General Elections results. Meanwhile, the Philippines peso underperformed as a follow-through from the recent dovish shift by the BSP, while the Thai baht fell 1.3% with domestic political situation weighing on the currency as Thailand’s Constitutional Court accepted a petition seeking to remove the Prime Minister. USDVND continued to hit close to the ceiling rate with a lack of RHS dollar liquidity, with the central bank reiterating its plan to sell dollars among other tools to manage the exchange rate flexibly.

The key highlights of this week include the US PCE deflator, US personal income and spending data, together with PMIs out of China. Exit polls for India’s 2024 General Elections will be out from 1 June 2024, 6pm Indian Standard Time, giving an early indication of the results ahead of the official announcement on 4th June. We will also get Q1 GDP data for Taiwan, industrial production and trade data from South Korea, coupled with inflation and trade data from Vietnam.

There have been modest jitters as India's General Elections started, but we saw some inflows last week