CNY (7.241) ▬

▪ The yuan remained relatively stable, trading at around 7.23- 7.25 against the USD. Stronger economic data from the US and higher-than-expected inflation figures have driven the USD index (DXY) above the 106.0 mark, weakening risk-on currencies. However, the yuan's decline was partly offset by China's better-than-expected GDP growth in 1Q24 and state banks FX intervention.

▪ The prospect of China boosting its economy through monetary and fiscal measures may help to bolster the yuan around the 7.20/USD level in May, particularly if investors begin to unwind their long USD positions. The mixed signals from the recent FOMC meeting suggest the Fed remains uncertain about the US economic outlook, leading the market to closely monitor key economic indicators in the coming months. Softer readings could boost risk-on currencies like the yuan.

JPY (156.920) ▲

▪ Further hawkish recalibration in Fed interest rate expectations, coupled with a dovish readjustment of the Bank of Japan's monetary policy outlook, did not favour the yen, leading to its depreciation to as weak as 158.33/USD. The currency then experienced a sharp appreciation to around the 155.00/USD level following a highly possible FX intervention by the MoF. The local currency was further supported by a weakening USD post-FOMC.

▪ As we anticipate US data to remain strong through May, the yen may face ongoing pressure and trade with volatility in the 152.00-157.00/USD range, considering potential MoF interventions. Potential relief could arise if Japan's 1Q24 GDP exceeds expectations and if the inflation rate surpasses forecasts. Additionally, market attention will be directed towards the progress of shuntō wage hikes to gauge the impact of wage pass-through on inflation.

Source: Kenanga Research - 3 May 2024