Week Ahead FX outlook:
Key FX views:
Geopolitical tensions in the Middle East continued to dominate global markets in the later part of this week, triggered a widespread "risk-off" sentiment and pushed brent crude prices toward $110 per barrel. The reignited inflation fears led investors to scrap expectations for near-term interest rate cuts and instead price in a "higher-for-longer" stance from major central banks. The US dollar re-surged while global equity markets faced a correction, with the KOSPI leading the decline in Asia since last Friday. Asian currencies broadly were pressured by elevated energy prices. The Malaysian Ringgit, having being one of Asia’s top performing currency this year, faced the steepest declines due to their high sensitivity to global risk-off sentiment and possible profit-taking by investors. CNY stayed resilient while TWD strengthened moderately, helped by the stronger than expected February IP growth, decent February exports growth and low employment rate.
Next week’s Asia FX movements are likely to be dictated by a high-stakes "data-heavy" calendar, including US conference board confidence, JOLTS labor market stats, and nonfarm payrolls report, which may determine if the U.S. Dollar’s safe-haven dominance continues to pressure on Asian currencies. Crucial data releases like China’s March official manufacturing PMI, South Korea’s February industrial production, March exports growth and PMI, will be scrutinized for signs of individual economy’s and regional economic recovery, especially as high energy costs threaten to damage trade balance. If these reports show slowing growth alongside the current Middle East volatility, we would expect some pressure on Asian currencies, due to induced capital outflow to the greenback assets. Watch for potential market interventions or emergency liquidity measures from Asian central banks ahead. Recently, South Korea decided to conduct large-scale government bond purchases to stabilize the market, and stated a size of 5 trillion won with the buyback proceeding in two instalments- half the total size for each, on the 27th of this month and the 1st of April.
Rising US front-end yield prices out fed cuts, supporting USD and keeping Asian FX on the defensive
