US
Financial markets are back in risk-on mode as the US and Iran weigh further negotiations to extend a two-week ceasefire. Brent crude oil prices are down just under $100 a barrel, stocks and bonds are up, while USD is drifting lower against all major currencies.
We are sticking to our view that while the energy shock may not be over, the worst is probably behind us. If so, March 30 likely marked the bottom in risk sentiment. That would leave DXY (USD index) trading off rate differentials once again, keeping the currency within its nearly one-year 96.00-100.00 range over the next few months.
Structurally, we maintain our long-held bearish USD view because of: (i) fading confidence in US trade and security policy, (ii) worsening US fiscal credibility, and (iii) the ongoing politicization of the Fed.
Second-tier US data are due today: weekly ADP employment change, March NFIB small business optimism index, March PPI.
The IMF releases its closely watched World Economic Outlook today (2:00pm London, 9:00am New York). IMF chief Kristalina Georgieva flagged last week that global growth will be downgraded, even under the most hopeful scenario of a swift normalization to the energy shock. “Why? Because of significant infrastructure damage, supply disruptions, losses of confidence, and other scarring effects.” Georgieva also warned that the world has a fiscal space problem reflecting growing public debt and rising interest payments.
Indeed, we previously highlighted that a key risk facing financial markets is that the energy shock morphs into a fiscal shock as higher borrowing costs collide with already stretched public finances, while sovereign debt is increasingly held by price-sensitive hedged funds. The IMF’s updated Global Financial Stability Report (today) and Fiscal Monitor (Wednesday) should offer a timely assessment around sovereign debt sustainability.
SINGAPORE
USD/SGD is trading heavy around 1.2700. The Monetary Authority of Singapore (MAS) delivered on expectations and tightened policy to curb rising inflationary pressures. MAS noted it will “increase slightly” the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER), while keeping the width and midpoint unchanged.
MAS has scope to tighten policy further this year. Both MAS Core and CPI-All Items Inflation are now forecast to average 1.5–2.5% in 2026, up from the previous range of 1.0–2.0%. And, MAS forecasts the output gap to average +0.2% of potential GDP in 2026.
CHINA
USD/CNH dropped to fresh cyclical lows around 6.8120. In March, China unexpectedly recorded its smallest monthly trade surplus in a year (actual: $51bn, consensus: $107.6bn, prior: $91bn) largely due to seasonal factors and base effect. On an annual basis, China’s trade surplus remains massive at nearly $1.2 trillion.
In our view, a continued appreciation in China’s currency could help the country shift its growth model towards consumer spending by boosting disposable income through cheaper imports. Bottom line: USD/CNH downtrend is intact.
