Ahead Today
G3: US University of Michigan Sentiment, US Housing Starts
Asia: Malaysia GDP, Hong Kong GDP
Market Highlights
The US Dollar weakened while Asian currencies had a stronger run over the past two days on the back of several factors. First on the US side, retail sales numbers and PPI inflation numbers out yesterday were softer than expected, leading to some increased pricing for Fed rate cuts with US yields declining as such. Second, the APEC meeting this Thursday and Friday had Trade Ministers from Asian markets including China, South Korea, Japan and Taiwan jostling for meetings with US Trade Representative Jamieson Greer, with the market focused on whether FX would be a key point of discussion. Third, oil prices moderated on the possibility of an Iran deal. From Asian FX markets more broadly, whether any trade deal will be struck will be key for the dispersion of outcomes. According to Trump, India offered US a trade deal which essentially lowered tariffs across the board, a claim India came out to deny subsequently. Trump also mentioned that he was not happy that Apple was building more production in India. Whether all these are a negotiating tactic by Trump is unclear, but the good news is that there are meaningful discussions on trade between US and India and hence we still think a trade deal between the 2 are more likely than not.
Regional FX
Overall, Asian currencies generally strengthened with TWD (+0.4%), KRW (+0.5%), SGD (+0.3%) and MYR (+0.2%) outperforming, while India underperformed declining by 0.3% on the back of uncertainty over the US-India trade deal. India’s trade deficit rose by a larger than expected US$26.4bn in April, up from US$21.5bn the previous month and compared with the consensus expectation of a US$20.5bn print. Some of the rise in the trade deficit is likely driven by stronger domestic demand, with the non-oil non-gold trade deficit rising during April. The good news for the path forward is that India’s oil trade deficit was much larger than implied by existing oil prices, and as such could imply that the trade deficit starts to narrow in subsequent prints. Services exports also picked up although not as much as implied by the goods deficit. Overall, we continue to forecast USD/INR at 85.00 by 2Q2025 and 83.50 by 1Q2026, and have a preference to sell USD/INR on rallies. The key assumption is for some agreement on a trade deal between the US and India, coupled with good external and internal macro stability, coupled with gradually improving domestic growth helping to attract portfolio inflows through 2025.
