The DXY rallied above 100 after Chinese media reported that that the US is reaching out to China for negotiations, and China has added that it is evaluating possible trade negotiations, and the US should show sincerity. Both sides are hurting from high tariffs and a negotiated tariff reduction is in both countries’ interests, but Trump could have to set the stage for negotiations first with more respectful gestures. Meanwhile, US Q1 GDP on Wednesday showed a contraction of -0.3% q/q saar, reflecting a softening in economic hard data amid elevated trade tensions. US non-farm payrolls tonight also bear watching for the impact of trade uncertainty on the labour market. Over the coming weeks, markets will hope for good news over US trade negotiations, with Treasury Secretary Bessent confirming that seventeen negotiations are in motion, and that a deal with India, South Korea, and Japan could be close.
RMB has held on to its gains despite a stronger USD, with USD/CNH consolidating around 7.27. Sentiment towards the RMB is improving despite China’s manufacturing PMI having softened more than expected to 49.0 in Apr (Mar: 50.5). We maintain our long-held view that China will keep the RMB anchored despite trade difficulties, and the weakness of the USD year-to-date had also helped in facilitating this.
USD/JPY rose above 145 after the BOJ marked down its growth and core CPI forecasts for FY2026 and FY2027, while keeping rates unchanged. Given BOJ’s concerns over the impact of US tariffs on the economy, the pace of monetary policy normalization looks to be slower than previously envisioned. Market pricing for another BOJ rate hike this year has shifted down to a less than even chance. Meanwhile, Japan’s chief trade negotiator Akazawa has said that trade discussions with the US will likely gain momentum in mid-May after concluding the latest round of talks. Finance Minister Kato also hinted that Japan’s large holdings of US Treasuries could be a leverage in discussions. Certainly, volatility in the US Treasury market and a weaker USD post reciprocal tariffs this year has been notable, although it is difficult to identify if sovereign actions are at work.
Australia and Singapore will hold elections tomorrow on May 3. In Australia, there are few fiscal policy differences between Labor and the Coalition, with both parties having made roughly AUD78bn of pledges in spending, with no timeline for returning the budget to surplus. AUD/USD has stabilized around 0.64 and could be more supported by hopes around US-China negotiations. For Singapore, there are no appreciable risks for markets, with the PAP set to win a majority of parliament seats.
Quote of the Day
“Power intoxicates men. It is never voluntarily surrendered. It must be taken from them.”
James F. Byrnes
May 2 in history
In 2019, a drone successfully delivered a donor kidney for a transplant surgery in Baltimore, Maryland, marking the first time this was done in the US.
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