Week Ahead FX outlook:
Key FX views:
Asia’s calendar is front-loaded with China and Japan, and the key theme is whether regional growth resilience can withstand higher energy prices and still-fragile domestic demand. China’s April activity data on Monday should reinforce the “two-speed” picture: industrial production is expected to remain supported by exports, while retail sales and fixed-asset investment may slow, highlighting weak consumption, soft private investment and renewed pressure from construction activity. The policy signal is also likely to be one of caution rather than fresh stimulus, with China’s 1-year and 5-year loan prime rates expected to stay unchanged. Elsewhere in Asia, Thailand’s 1Q GDP is expected to cool, Malaysia’s CPI should pick up on higher energy prices, and Bank Indonesia is likely to keep rates unchanged at 4.75%, balancing still-contained inflation against rupiah weakness and the risk that persistent oil strength and capital outflows eventually force a more hawkish pivot.
Japan will be another important focal point, with 1Q GDP due Tuesday and April CPI due Friday. The data should show Japan’s economy expanding at a good pace in 1Q although this is somewhat backward-looking given the likely drag from higher oil prices from 2Q onward. April CPI is expected to remain firm, supported by wage and import-cost pass-through, and this should keep markets attentive to the BOJ’s June meeting, where a 25bp BOJ hike to 1.0% remains our base case especially if geopolitical uncertainty eases.
Globally, the main event is the May 20 FOMC minutes, which are expected to show growing support within the Fed for dropping its easing bias and moving toward more neutral guidance, reflecting two-sided risks from the Iran conflict: higher oil prices lifting inflation but also threatening growth and employment. In Europe, attention will fall on UK labor-market data and CPI, euro-area CPI and PMIs, Germany’s Ifo and GDP. Markets will also watch the G-7 finance ministers and central bank governors’ meeting in Paris on May 18-19, where global imbalances, trade tensions and FX policy are expected to feature, alongside APEC trade ministers’ meetings in China later in the week.
Range-bound movement for the Chinese Yuan likely in the rest of May after Trump-Xi summit
