EM FX is coming off a good week, capitalizing on broad-based dollar weakness. Better than expected data out of China helped boost market sentiment too. Key US and China data will come out this week and should help determine the short-term outlook for the dollar.
India reports March WPI Monday, which is expected to rise 3.23% y/y vs. 2.93% in February. March CPI came in higher than expected at 2.86% y/y, and we suspect higher oil prices will exert upward pressure on WPI inflation too. RBI just cut rates 25 bp and the next policy meeting is June 6. Another cut is possible then.
Israel reports March CPI Monday, which is expected to rise 1.3% y/y vs. 1.2% in February. March trade will be reported Tuesday, while central bank minutes will be released Thursday. The bank appears to be in no hurry to hike rates again. The next policy meeting is May 20 and no change is expected then.
Turkey reports February IP Tuesday, which is expected to contract -6.2% y/y vs. -7.3% in January. The recession continues to worsen, but the weak lira and rising inflation will prevent the central bank from easing anytime soon. Next policy meeting is April 25. If the lira remains under severe pressure, we think some tightening measures will be announced then.
Argentina reports March CPI Tuesday. The peso weakened nearly 10% in March and so inflation is likely to accelerate from 51.3% y/y in February. The central bank has kept policy tight but may need to do more if the peso comes under renewed pressure.
Singapore reports March trade Wednesday, with NODX expected to contract -1.2% y/y vs. +4.9% in February. The MAS just left policy unchanged last week, citing slow growth and low price pressures. Given the difficult external environment, we suspect it will also remain on hold at its next policy meeting in October.
China reports March IP and retail sales and Q1 GDP Wednesday. IP is expected to rise 6.0% y/y, retail sales by 8.4% y/y, and GDP by 6.3% y/y. The larger than expected rise in new loans and aggregate financing suggests that previous stimulus is working its way through the system. As such, we should start to see some improvement in the real economic data too.
South Africa reports March CPI Wednesday, which is expected to rise 4.5% y/y vs. 4.1% in February. If so, this would be right in the middle of the 3-6% target range. February retail sales will also be reported Wednesday, which are expected to rise 0.7% y/y vs. 1.2% in January. SARB is wrestling with both sluggish growth and rising price pressures, and so there is no clear-cut policy response.
Bank of Korea meets Thursday and is expected to keep rates steady at 1.75%. CPI rose only 0.4% y/y in March, well below the 2% target. With growth headwinds still strong, we believe rates will be kept on hold for the rest of this year.
Poland reports March industrial output and PPI Thursday. The former is expected to rise 4.5% y/y and the latter by 2.6% y/y, with both slowing from February. Central bank minutes will also be released Thursday. CPI rose 1.7% y/y in March, the highest since October but still below the 2-4% target range. The bank is likely to make good on its pledge to keep rates steady into 2020.