Week Ahead FX outlook:
Key FX views:
It’ll be a busy week coming up with focus on the impact of President Trump’s possible appointment of a new Fed Chair, US non-farm payrolls data, central bank policy decisions from India and Australia, coupled with FY2026/27 Budget announcement from India on 1 Feb. In addition, there will also be several macro datapoints including export and PMI numbers out of our region to gauge manufacturing sentiment at the start of the year, coupled with Indonesia GDP.
In particular, betting markets have priced in a 94% probability that Kevin Warsh will be appointed as the next Fed Chair, and with Trump likely to announce his decision soon based on latest news. The initial market reaction was for Dollar strengthening, some weakness in Asian currencies, together with a steeper US Treasury yield curve and risk off in some assets such as gold as positioning got washed out. In public comments, Kevin Warsh has turned more dovish in recent years from his more hawkish days as a former Fed Governor, while also supporting reducing the size of the Fed’s balance sheet. While the initial market reactions make sense, with broader US policy uncertainty still in play and broader macro dynamics of a soft US labour market still very much in play, our global team thinks that the initial USD relief rally should reverse over time in line with our long-standing view for a weaker Dollar through 2026. On that note, the US non-farm payrolls data could be important in shaping global FX and rates markets trajectory, although the numbers are still likely to be clouded by statistical issues.
For Asia, the focus will be on India’s FY2026/27 Budget out on 1 Feb, coupled with central bank policy decisions from RBI and RBA. India’s Budget will be more important than usual from an INR FX and rates perspective, and markets will watch closely for whether the central government commits to a credible fiscal consolidation path. The broader macro picture is that the rate structure in India is rising despite RBI rate cuts and INR liquidity injections, due to continued capital outflows, FX intervention, coupled with elevated state government borrowing. In that context, a strong commitment to fiscal consolidation will be important in arresting the rise in bond yields, and to some extent also curbing pace of capital outflows. We see RBI remaining on hold in its policy meeting.
We expect the Reserve Bank of India to remain on hold, but the bigger issue is capital outflows and rising state level borrowing pushing up the broader interest rate structure
