CNY (7.222) ▬

• The yuan initially faced pressure due to strong US nonfarm payroll data and a hotter-than-expected US inflation, hovering near its four-month low of 7.20/USD. It later breached this level on March 21 as the PBoC raised its yuan fixing. Despite escalating volatility, the PBoC signalled its commitment to bolstering the CNY, echoing Beijing’s stance on yuan stabilisation outlined during the Two Sessions.

• The yuan may stabilise around its current level due to the absence of domestic catalysts. However, if China's 1Q24 GDP surprises on the upside, the yuan may stand to benefit. Market attention will be on the Politburo's economic meeting for potential stimulus measures. To add, data from the US remains pivotal in determining the Fed's policy direction and the strength of the USD. Any further signs of weakness, particularly in spending, could lend support to the yuan.

JPY (151.350) ▲

• Despite the pivotal decision by the Bank of Japan (BoJ) to terminate its negative interest rate policy and discontinue yield curve control, the yen depreciated close to its intervention level of 152.0/USD. This is partly due to the enduring strength of the USD, fuelled by uncertainties surrounding the Fed's monetary policy outlook and the lack of immediate prospects for rate hikes from the BoJ.

• Further insights from the 2024 Shuntō wage negotiations, which encompass SMEs as early as April 4, are anticipated to influence yen movements. Should robust wage growth extend to the remaining 70.0% of Japan's workforce, the BoJ may lean towards a more hawkish stance in the upcoming April meeting, potentially favouring the yen. Moreover, indications of stronger consumer spending, such as increased services inflation and stronger retail sales, could further bolster the yen's position.

Source: Kenanga Research - 1 Apr 2024