Asia FX Monthly Outlook - 1 April 2024

Expected Chinese stimulus and weak US economic data may boost risk assets

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.