Asian FX Close: Markets look ahead to upcoming US data - 1Q GDP, Personal Income and Spending and Core PCE

Snapshot

• DXY: Market looks ahead to key US data of interest today, which includes 1Q GDP Annualized QoQ, March Personal Income data, March Personal Spending data and the Core PCE Price Index MoM, to provide more clues on the impact of tariffs policy on US economy
• EUR/USD: March Consumer CPI expectations suggest short term expectations appear to exceed the ECB’s 2% target but longer-term expectations remains anchored
• USD/JPY: BOJ to stand pat in upcoming policy rate meeting but to signal in its outlook report that they will maintain existing stance of gradually raising interest rates
• AUD/USD & NZD/USD: Weak China Manufacturing PMI could weigh on bulls / NZ business confidence slumped in April amid tariff concerns
• Oil: Bulls could get a reprieve if Trump's administration pares back "reciprocal" tariffs & push out "successful" trade deals that firms risk appetites
• Gold: Rising stagflationary risks from this week's US docket could keep Gold prices buoyant

US Dollar

Dxy breach below the 98 mark to post fresh 3year lows at 97.921 (21 Apr low) before bouncing. Upticks should fade under 100.276 (15 Apr minor lower reaction high), on overshoot, possibly towards former 101.267 low (3 Apr low) before bears reassert. The 30 Mar 2022 low at 97.685 is next downside target, loss of which opens 97.441 (28 Jan 22' former high) - 96.523 (25 Feb 22' low) next. A 50-200 DMA death cross that was triggered on 16 Apr weighs and suggest longer term bears now taking a hold on market. Recovery bulls thus far capped under 23 Apr 99.939 high for the past week

Looks like when Bessent said they have an “escalation ladder in his back pocket and we’re very anxious not to have to use it” and added that escalation could include an “embargo”, China took that as a veiled threat instead of US reluctance to resort to that. Chinese Foreign Minister urge other countries against giving in to US tariffs, saying it would only embolden the “bully”. No one said the pathway to a June Birthday summit was easy…not if you slap over 100% tariffs on China made birthday candles.

As we mentioned before, we expected tough talk from the US administration least Trump’s initial eagerness to back down is seen as weakness and US decided to go with a carrot and stick approach. Turns out China really hates the stick and would just rather have the carrot and the cake. The Trump administration would have been made aware of the dire warnings from major companies like Walmart and Target that US shoppers may face empty shelves and higher prices if the US-China trade impasse persists. Shipping data appears to support their warnings with cargo shipments from China to US down an estimated 60%. In other signs of the economic impact of the trade war, Shein increased it’s US prices by 10% or more across a 50-item sample cart, by comparison UK prices stayed flat. For a president elected partly because of frustration with inflation, it could end up costing lawmakers loyal to him, their jobs in midterm elections next year. Trump could then end up being a “lame duck” President for the rest of his term with the Democrats in control of the House. Already voter dissatisfaction is showing, with Fox News polling indicating a low 38% approval rating on the economy and even lower 33% approval rating in inflation

In contrast to Trump’s lower approval ratings, the US tariffs have sparked a wave of nationalist sentiments from across all walks in China, backing President Xi to hunker down against this “external threat”. How long this wave of patriotism will last as the weeks and months go by and more Chinese workers lose their jobs, remains to be seen

While the Trump administration sees China granting tariff exemptions on pharmaceuticals, microchips, aircraft engines and latest ethane imports, as overtures to trade negotiations, it could also be Chinese pragmatism to ensure essential US imports remain affordable. A recent Beijing Daily editorial called on the Chinese people to prepare for a “protracted war”. The editorial argued that “China should neither compromise with the US in hopes of getting a “good idea” or assume a trade war victory was imminent”. Basically throwing the ball back in Bessent’s court that the first step in de-escalating the tariff war should come from US and not China side

We suspect if the dire warnings from the US soft survey data starts reflecting in the hard data, Trump’s administration sticks and carrots approach towards China will shift towards more carrots than sticks. As Assistant professor Dylan Loh of NTU said “The Chinese want to show resolve because they believe that showing weakness is a playing a losing card but that does not mean they don’t want to cut a deal”. At the end of the day, it is back to the game of who blinked first.

Trump's auto tariffs relief according to a government official, will provide credits of up to 15% of the value of vehicles assembled domestically and can be used to offset against the value of imported parts. US Commerce Secretary touts his deal with a foreign power that would permanently ease the nation of "reciprocal" tariffs. Details lacking for now but expect more such rollback of the "reciprocal" tariffs debacle as the Trump administration shift focus to their tax cuts agenda. Already Treasury Secretary Bessent is targeting a July 4 deadline to pass a multi trillion dollar tax cut to placate irate voters disillusioned with Trump's economic leadership

Meantime Amazon was warned by White House Press Secretary Leavitt that displaying cost of President Trump’s tariffs on their products constitute an “hostile” and “political” act. It is a strange world we are living in when the Communist country is the one portraying itself as the bastion of free trade while the supposedly “freest” country in the world now picks winners (Tesla, Oracle) and threatens companies that don’t toe the party line (Amazon, CBS, JP Morgan), possibly yet another reason why the capital outflow from US assets could continue

Number of key US data market will be looking out for later today. This includes 1Q GDP Annualized QoQ, March Personal Income data, March Personal Spending data and the Core PCE Price Index MoM, which will provide more clues on the impact of tariffs policy on US economy

1Q GDP Annualized QoQ expected to dip down to -0.2% QoQ from 2.4% prior, with risk potentially skewed towards a lower reading as data starts to reflect the early fallout from the tariffs

March Personal Income expected to come in at 0.4% compared to prior 0.8%. Lower income households, disproportionately affected by tariffs may see weaker income growth. Goldman Sachs forecasts real income growth for 2025 at 2.0%, down from 2.5%, suggesting a broader slowdown. Falling consumer sentiment (U of Michigan indext at 64.7 in February) could also dampen labour market activity

March Personal Spending expected to post 0.6% growth compared to prior 0.4%. A March retail sales surge (1.4% MoM) driven by a 5.3% spike in autos, suggest front running purchase ahead of the auto tariffs, temporarily boosting spending. As we head into the April and May data, which will reflect the trade embargo on China, we could see a sharp downturn in personal spending

March Core PCE MoM is expected to show deflationary pressures with forecast of 0.1% compared to prior 0.4%. However, recent Fed speak is suggesting some members are getting concerned about rising inflation expectations seen in numerous Fed surveys and this could keep the Fed from cutting rates despite the market anticipating earlier rate cuts to forestall an economic slowdown

Euro

EurUsd have fully retraced the September 2024-February 2025, 1.1214-1.0141 fall, extending gains to post 3 1/2-year highs at 1.1573 (21 Apr high) thus far. Scope seen for advance towards 28 Oct 21’ 1.1692 high next (also near 76.4% retrace of January 2021-September 2022, 1.2349-.9536. fall). The 1.1214-1.1264 zone (25 Sep 24' high - 15 Apr low) should cushion corrective pullbacks, with stronger support seen below at 1.1144 (3 Apr former high)

March Consumer CPI expectations over a 1 year /3 year period hit 2.9% vs fc 2.5% and prior 2.6% / 2.5% vs fc 2.3% vs prior 2.4%. The 1 year inflation expectations gauge was the highest in one year even as the ECB weighs further reduction in rate cuts. ECB also publish 5 years CPI expectations for the first time and it came in at 2.1%. Short term expectations now appear to exceed the ECB’s 2% target but longer-term expectations (2.5% for 3 years and 2.1% for 5 years) remains anchored. This mismatch could see ECB prioritize near term growth support while monitoring if short term price pressures will spill into the broader inflation dynamics

With ECB recently revising it’s 2025 GDP forecast from 1.1% down to 0.9% and dismal April Economic Confidence Indicators (93.6 vs f/c 94.5 vs prior 95.2), with Industrial and Services sectors all saw worsening sentiment compared with March, markets are betting that in the trade off between growth and inflation risk, ECB will choose growth. OIS Markets still pricing in a near certainty for a June cut and possibly a further two more cuts after that, with ECB deposit rates possibly bottoming around 1.75%-1.50%

Germany's May Gfk Consumer Confidence Survey ticked up unexpectedly to -20.6 from April’s -24.5. The stability of a new government and the new fiscal regime they bring overcame the negative impact from Trump’s tariffs. The US continues to place a 10% import tariff on German goods, alongside a 25% levy on autos, steel and aluminium and the IMF recently downgraded expectations for the German economy

However, that did not dent income expectations and consumers’ willingness to buy which showed noticeable increases. Even economic expectations improve a little. Pantheon economist Claus Vistesen said that “the prospect of lower energy prices and a quicker decline in European interest rate could also be contributing factors”. Indeed recent data from ECB showed positive credit impulse is helping boost economic activity at a time when US tariffs are starting to make things harder for European exporters

In a contrarian call, Franklin Templeton (FT) expects the ECB to start pivoting to considering rate hikes by the end of the year. FT sees Europe recover off it’s low base in 2025 and enter a Goldilocks situation of economic growth and low inflation in 2026. Once ECB’s deposit rate start bottoming between 1.75% to 1.5% by September, FT expects the focus to shift back towards the boost from Europe and Germany’s defence and infrastructure spending, which will stimulate economic growth and reignite inflationary pressures

JPMorgan Chase & Co, BNP Paribas and Danske Bank are all calling for EurUsd at 1.20 or more by year end. Euro is becoming an alternative destination for investors seeking to diversify out of US assets but along with this strength in the Euro it complicates recovery in export heavy European nations like Germany

On Geopolitical front, hopes for a peace deal between Russia and Ukraine further derailed as Russia demands control of four regions of Ukraine it doesn't fully occupy as part of any agreement to end the war

Japanese Yen

UsdJpy nearly fully retrace the Sep 2024-Jan 2025, 139.58-158.87 rally before bouncing off fresh YTD low at 139.89 (22 Apr low). Look for former lows at 144.56-146.54 (4 Apr – 11 Mar lows) to cap recovery moves. We anticipate eventual renewed attempts on 139.89-58, loss there opens 28 Jul 23' 138.07 higher low. The bearish crossover of the 50-200 DMAs should continue to weigh.

Signs of risk sentiment picking up last week as we saw haven currencies Chf and Jpy ranked as the bottom two G10 currencies. Still, w

e view the dollar to be in a regime change structural decline and expect recovery in UsdJpy to fizzle out as it runs into key technical levels. If we see a string of positive trade related deals being rolled out, we could see an initial paring back of haven bets, which could see UsdJpy stretch to our 144.56-146.54 technical levels. With trade deals being revealed it also means some of the uncertainties in tariffs will be somewhat cleared, especially for Japan which we expect to be one of the first few countries to get a favourable deal, market could soon focus back on BOJ resuming their rate hiking cycle, keeping broader downtrend in UsdJpy intact

CFTC futures positioning shows speculators remain overwhelmingly Yen bullish, with net yen long positions climbing up 5959 contracts to 177,814 contracts as of reporting date 22 April. 1 year z-score continues to suggest overstretched positioning at well over 3 standard deviations. Still in a strong bullish phase, overbought indicators could stay overbought for quite a while

This week’s BOJ policy rate meeting on April 30-May 1 is expected to see BOJ keep it’s target rate at 0.5% due to the trade war uncertainty. Recent Tokyo's CPI numbers, a leading indicator for nationwide inflation, rose in the fastest pace in 2 years with headline CPI at 3.5% beating forecast of 3.3% and prior 2.9%. Core inflation at 3.4% also beat both forecast and prior readings. This will likely keep BOJ alert to the persistence of underlying inflationary pressures and the risk of overshooting it’s 2% target. Expect rate hike resumption narratives to be rebooted once trade uncertainties settle down with a possible rate hike in the second half of the year

BOJ is set to cut it’s economic growth forecast in it’s quarterly outlook report. The BOJ is likely to signal in its outlook report that they will maintain existing stance of gradually raising interest rates as the risk from higher US tariffs will not derail the cycle of higher wages and accelerating inflation. The emphasis towards raising rates higher would also be consistent in boosting yen strength and could be use as part of the US-Japan trade talks

A Bloomberg survey of 54 economists saw no policy change at the upcoming Apr 30-May 1 BOJ policy meeting. Those expecting a hike by September also plunged to 45% from 89% in the previous survey. The terminal rate for this cycle was also pared back to 1% from 1.25% in the March survey

Recently Released Japan Data

• March Preliminary Industrial Production MoM -1.1% vs fc -0.4% vs prior 2.3%
• March Preliminary Industrial Production YoY -0.3% vs fc 0.8% vs prior 0.1%
• March Retail Sales YoY 3.1% vs fc 3.5% vs prior 1.3% (Revised)
• March Retail Sales MoM -1.2% vs fc -0.7% vs 0.4% (prior)

After a strong 2.3% rebound in February’s Industrial Production MoM numbers, March data came in negative at -1.1%, worse than consensus estimate at -0.40%. This coincides with Japan’s March Manufacturing PMI which reflected global headwinds form the tariffs and was in contractionary territory. US tariffs likely prompt manufacturers, such as carmakers to scale back output. This bodes ill for first quarter GDP growth

March Retail Sales YoY came in at 3.1% up from prior 1.30% (Revised). The February figure was unusually weak, partly due to severe winter weather and calendar effects, March data saw a rebound of sectors such as convenience stores and food and beverage. March YoY increase marks the 36th consecutive month of expansion and indicates resilience in consumer spending amid rising wages. The MoM contraction though suggest momentum may be slowing

Australian and New Zealand Dollar

AudUsd rallied sharply off YTD low at .5915 (9 Apr low), breaking above the 50 DMA~.6286 decisively and extending gains to breach the confluence of resistances in the .6389-.6391-.6409 area and the 50% retrace of the .6942-.5915 fall at .6428. Traded to a fresh YTD high yesterday, hitting .6450 but remains capped by the 200 DMA which lies just above at .6460. Above there exposes .6550 (25 Nov 24' lower high/also 61.8% retrace). Back below the 50 DMA~.6302 needed to dampen current bullish momentum

With recent move above .6409, AudUsd appear to be hammering out a bottoming process amid the persistent rotation out of USD assets. China’s Politburo recently held its quarterly econ-focused meeting. The Politburo indicated it was focused on speeding up the implementation of fiscal and monetary policies by accelerating the issuance and use of government bonds and cutting interest rates and the reserve requirement ratio when appropriate. More importantly, the Party leadership signalled that it was ready to roll out additional stimulus in a timely manner. Aud should also remain firm as a CNY proxy, with a recent report that China will rectify all kinds of unreasonable regulations and practices that restrict market access.

Initial release of US data from this week's US data docket have been disappointing and this could keep dollar on the backfoot but the current US-China trade impasse could make AudUsd longs lack the confidence to go for a push above the 200 DMA. Weak Chinese Manufacturing PMI numbers released recently could also weigh on bulls

S&P Global Ratings warned Australia's triple A sovereign credit rating may be at risk if "election campaign pledges result in larger structural deficits, debt and interest costs". Meantime, polls show that Australia's Centre Left Labor government is on track to win the May 3 Election as the Trump effect weighs down on conservative candidates globally

Australia's March Inflation data came in slightly above forecasts of 2.2%, posting 2.4% similar to February's reading. Markets still does not see this derailing an expected rate cut in the May meeting. OIS markets still pricing in a certainty for RBA to cut rates in May. Market players believe the threat to economic growth overwhelms the threat of higher inflation and will force RBA to opt for the rate cuts. In any case CPI remains below the mid point of RBA’s 2%-3% target band

NzdUsd recovered sharply off it's .6486 YTD low (9 Apr low), to break decisively above it's 200 DMA. Market tested fresh YTD high at .6029 (22 Apr high), just below our bull target at .6038 (7 Nov 24' minor lower reaction high/also 61.8% retrace of .6379-.5486 fall). Above there opens .6120 (11 Oct 24 minor lower high). Corrective pullbacks should fade towards the 200 DMA~.5881, with former highs at .5831-.5853 (18 Mar-3 Apr highs) providing stronger supports

New Zealand government indicated they will be cutting new spending in this year's budget due to US tariffs affecting global growth and the country's fiscal recovery. The Treasury Department forecast a return to budget surplus in 2029

Recently Released NZ Data :

• April ANZ Activity Outlook 47.7 vs prior 48.6
• April ANZ Business Confidence 49.3 vs prior 57.5

New Zealand business confidence slumped to 49.3 vs prior 57.5. Most forward looking indicators were weigh down by concerns that the Trump tariffs will impact economic growth. A net of 47.7% respondents to the survey expected their own businesses to grow over the next 12 months compared with 48.6% in the March survey

Bloomberg Economist estimates that policymakers need to deliver deeper easing than the central bank’s November projections. They are looking for RBNZ to deliver by up to 175 bps to bring OCR to 2.5% by year end, below it’s long-term neutral estimate of 3.00%, to maintain the recovery traction off 2024’s deep recession

Oil and Other Commodities

Brent Crude Oil bounced sharply off it’s 9 Apr YTD low at 58.40 to slightly breach former 68.33 low (5 Mar low) but the 61.8% retrace (68.95) of the 75.47-58.40 fall caps, and recent rejection off 68.65 (23 Apr high) continues to suggest underlying market remains bearish. Over 68.95 and the 50 DMA~70.80 needed to firm signs for a turnaround

Barclays projects a surplus of 1 million barrels per day in 2025 and 1.5 mb/d in 2026. They lowered their Brent crude forecast to $70 per barrel for 2025 and $62 per barrel for 2026. The Bank cited escalating trade tensions and OPEC+ pivot in it's production strategy

However, if as we suspect, Trump's administration continues to backtrack on their "reciprocal" tariffs, we could see recovery bulls start to reassert. Especially if they start to roll out "successful" trade deals with key trading nations like India, Japan, South Korea, further diminishing the dire outlook priced in global demand from the tariffs debacle and reviving risk appetite

Gold posted a record high at 3500.10 (22 Apr high) ahead of a much-needed corrective dip. Downside thus far halted at 3260.40 (23 Apr low), above former 14 Apr 3245.75 high. We see scope for market to renew up climbs to target 3547.88 (1.764x 2832.71-3167.84 off 2956.71 projection) next. Below 3245.75 could see correction stretch to 3193.74 - 3167.84 (14 Apr low - 3 Apr former high) before bulls reassert

This week's packed US data docket, if it continues to reflect rising risk of stagflation could prevent a deeper corrective leg in Gold

The next phase of Trump's administration agenda to extend and expand on the Trump's Tax Cuts and Jobs Act (TCJA) looks set to widen the fiscal deficit and amplify the fiscal pressures on the economy. This erosion of fiscal restraint should continue to bolster the case for a structural weaker dollar and should underpin longer term gold bulls.

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