News & Insights
US May nonfarm payrolls fell short of market expectations on Friday (+559k MoM; vs consensus: +650k; previous: +266k), pushing the USD down 0.6% against the EUR and down 0.4% against the RMB shortly after the announcement. Albeit lower than expected, China’s trade surplus further increased in May (US$45.5bn; vs consensus: US$50.5bn; previous: US$42.9bn), according to yesterday’s official announcement, as China continues to benefit from strong global demand. Although the RMB weakened 0.4% against the USD over the past 7 days amid clear signals by The People’s Bank of China (PBoC) that the yuan’s appreciation should remain under control, we believe the structural reasons behind the long-term depreciation of the USDRMB are intact. Last week, Russia announced it will remove the US dollar from its oil fund to reduce vulnerability to US sanctions, shifting the fund’s US dollar holdings to euros, yuan, and gold. This move is in line with the ongoing global de-dollarization trend. As such, we anticipate further support for the EUR and RMB in the coming months, making Forex hedging highly relevant for companies importing goods from China or Europe and looking to secure their profit margin against currency fluctuations.
US April trade balance will be announced tonight (consensus: -US$69.0bn; previous: -$74.4bn). A larger-than-expected deficit would support exporter currencies relative to the US dollar, like the euro. Inflation figures for May are also due this week with China’s inflation announced on Wednesday (consensus: 1.6% YoY; previous: 0.9%) and US inflation figures expected for Thursday. The market anticipates a further rise in inflation readings for both US headline inflation (consensus: 4.7% YoY; previous: 4.2%) and US core inflation (consensus: 3.4% YoY; previous: 3.0%). Lower-than-expected figures would ease off the pressure on the Fed to revise its highly accommodative stance and likely weaken the US dollar.