Week Ahead FX outlook:
Key FX views:
For the coming week, China’s “Two Sessions” will take center stage. The National People’s Congress will formally outline the policy agenda for 2026–2030, including the new Five‑Year Plan, setting the macro and reform backdrop for the region. The session will officially open on 4 March with the release of the Government Work Report on 5 March, and in which we expect the growth target to remain roughly unchanged, together with moderately more expansionary fiscal policy with a budgeted fiscal deficit-to-GDP ratio for 2026 at 4.0% or slightly higher. Within the context of the NPC, China’s February PMIs are expected to remain soft and below the expansion threshold, partly due to holiday disruptions, while exporter‑focused indicators should stay marginally in expansion.
Apart from China, key market moving events could include US non-farm payrolls and associated labour market datapoints on 6 March, coupled with Bank of Japan Deputy Governor Himino Ryozo’s speech on 2 March. A meaningful slowing in NFP and/or with a rise in unemployment rate could shift the probabilities in favour of Fed rate cuts, given that the US rates market has already priced out quite a bit since the start of the year. Meanwhile, BOJ Deputy Governor Himino may lay the initial groundwork for an April rate hike, even as there is uncertainty right now as to how much if any the Takaichi administration will push back against BOJ rate hikes moving forward, and in the broader context of recent appointment of two dovish BOJ Board Members.
If this week’s market movements and events are anything to go by, we think what will be key for the longer-run performance of Asia FX will be the relative performance of Asia assets versus US assets. On the US side of things, this is driven by a combination of continued trade policy uncertainty as emblematic in the wake of the recent Supreme Court ruling, a US which is increasingly building up trade barriers and pulling back from the world, coupled with concerns about elevated valuations in US assets. China’s trajectory and the linkages of Asia to AI will be key to whether the relative outperformance can continue.
One of the most important long-run drivers for Asia FX is relative equity performance between Asia and the S&P500, much less so the absolutes
