Asia Day Ahead: US dollar at near-term support, Chinese data mixed

Asia Open

The Asian session was met with a weak open, with Nikkei -0.57%, ASX -0.39% and KOSPI -0.65% at the time of writing. Risk sentiments may broadly track some profit-taking in Wall Street overnight, as the US dollar attempts to bounce off near-term support following its post-consumer price index (CPI) dip.

This comes as Federal Reserve (Fed) officials stuck to their views for high-for-longer rates overnight, which may disappoint some market participants who were expecting to see some tweak in US policymakers’ comments following the recent run of weaker economic data. A look at the US economic surprise index showed the index registering its lowest level since February 2023.

Yesterday, US April industrial production came in flat (0% versus 0.1% forecast), jobless claim numbers were weaker than expected, while April housing starts and building permits were below-forecast as well, which showed the US economy losing some steam. Nevertheless, the current market lean for a September rate cut seems reasonable, which offers some runway for further economic releases to guide policy decisions, given that inflation remains above target.

Economic data to digest: China’s retail sales, industrial production, fixed asset investment

Following the recent rally in Chinese equities, expectations are set for economic conditions to reveal a broad recovery but data releases this morning may bring some disappointment. For April, China’s retail sales (2.3% versus 3.8% consensus) and fixed asset investment (4.2% versus 4.6% consensus) both came in far lower than expected. Industrial production was the bright spot, coming in at 6.7% year-on-year versus the 5.5% forecast. New homes prices registered a deeper contraction at -3.1% year-on-year as well, showing that risks in the property sector persist and a recovery has not been playing out just yet.

The broadly weaker economic read may trigger some doubts on whether the worst is really over for China’s economic conditions amid the series of supportive policy measures thus far. This may drive some unwinding in Chinese equities as we head into the weekend break.

What to watch: US dollar retesting near-term support confluence

For now, the US dollar has found room to stabilise at a near-term upward trendline around the 104.00 level, which coincides with the lower edge of its daily Ichimoku Cloud support. That said, greater conviction for buyers may have to come from a move back above its Wednesday’s high at the 104.60 level, where its post-CPI dip ensued, in order to keep the upward bias trend intact. Any failure for the trendline support to hold could pave the way towards the 102.64 level next and suggest a near-term trend reversal.