Ahead Today
G3: US ISM services
Asia: Singapore retail sales, India PMI
Market Highlights
There are no credible signs of de-escalation in the Iran conflict, keeping Asian FX under pressure and reinforcing a bias toward USD strength. Geopolitical risks remain the dominant driver of market sentiment. US President Trump has expanded his threat to destroy Iran’s power grid and other key infrastructure, including bridges, if the Strait of Hormuz is not reopened by Tuesday 8pm ET, extending an earlier Monday deadline. While it remains to be seen whether this escalatory rhetoric ultimately proves to be another “TACO” moment, the persistence of threats to critical Iranian infrastructure keeps escalation risks elevated, with no credible de-escalation path in sight. As a result, oil prices are likely to remain elevated, with risks skewed toward further upside.
On the macro front, US data continues to underscore resilience in labour market conditions. US nonfarm payrolls rose by 178k in March, well above market expectations of 65k, reversing the 92k decline seen in February. While the three-month average pace of job gains remains moderate at +68k, the upside surprise could keep the Fed patient, implying “high-for-longer” rates. This, combined with the risk of higher oil prices feeding into US inflation, continues to hold off Fed policy easing. US 2-year yields remain elevated above 3.8%, above the effective fed funds rate, with markets no longer pricing rate cuts this year. Together, these dynamics support USD carry appeal and keep the dollar bid in a risk off environment.
Regional FX
For Asia, prolonged disruptions to energy flows through the Strait of Hormuz would be particularly damaging. An extended energy shock would raise inflation risks, worsen current account dynamics, and weigh heavily on regional growth prospects. Currencies such as KRW, PHP, and THB are likely to stay vulnerable, while CNY remains relatively insulated.
Thailand sits at the centre of the energy shock, with its vulnerability compounded by accommodative BOT policy and cheap funding conditions. Seasonally, Thailand is also moving into an off-peak tourism period, further weakening its external buffer. By contrast, CNY should stay relatively resilient, underpinned by higher energy self- sufficiency rate and sizeable strategic reserves. This resilience should, in turn, help support MYR, which tends to move in tandem with CNY and continues to benefit from strong domestic fundamentals.
VND also remains vulnerable to higher inflation. Headline CPI rose further to 4.65%yoy in March, above market expectations of 4%, driven by strong underlying momentum - GDP growth of 7.8%yoy in Q1, exports up 20.1%yoy in March, and industrial production rising 6.9%yoy. Elevated energy prices risk entrenching inflation pressures further, constraining policy flexibility.