Week Ahead FX outlook:
Key FX views:
In the coming week, US economic data could help determine whether the recent moderation in US PPI and labour market data translates into a softer USD outlook or merely a temporary pause in the dollar's strength. Following weaker July payrolls and softer producer prices, markets have modestly pared back near-term Fed tightening expectations. However, with inflation still well above the Fed's 2% target and December hike odds remaining elevated, upcoming US activity data including industrial production and PMI surveys will be closely watched. Stronger-than-expected activity data could reinforce the view that the Fed needs to keep policy restrictive for longer.
In China, attention will centre on July activity indicators, following a weak Q2 GDP print. Fixed asset investment is likely to remain weak, underscoring ongoing challenges in the property sector. The key question for FX markets is whether domestic demand shows signs of stabilization and whether PBOC is comfortable allowing continued strength in CNY. Any weaker-than-expected Chinese activity data could weigh on regional risk sentiment and those regional currencies that are closely interlinked with China’s economic outlook.
Across ASEAN, Singapore's July non-oil domestic exports will be closely watched after June's strong 20.7%yoy increase. Malaysia's inflation data should confirm that price pressures remain relatively contained, with CPI expected to hold at 1.9%yoy. Elsewhere, Thailand's Q2 GDP is expected to slow. A weaker growth profile would reinforce concerns over Thailand's cyclical underperformance and may continue to weigh on THB relative to regional peers. Indonesia's Bank Indonesia meeting is likely to be a non-event, with market consensus expecting the BI rate to remain unchanged at 5.75%. The recent rupiah stabilisation could give room for BI to keep rates steady in the August meeting.
PBOC has broadly guided USD/CNY lower via its daily fixing mechanism.
