The breathing space for the Asian FX space seems shortlived despite a whole range of factors speaking against a strong USD currently.

First, our rebalancing monitor is starting to flag a potential selling pressure for the USD later this month as the combined rebound in USD equities and USD fixed income will likely lead to USD selling in mechanical FX hedging programs.

Second, the relative real-rates have moved in favour of JPY and CNY versus the USD since Powells akwardly dovish presser last week and third, the commodity space is no longer as USD bullish after a softening of the energy price picture in recent weeks.

So why is USD/Asia bid again already? Let’s provide you with a few potential explanations.

First, the risk of a devaluation is still very present in China. We are eagerly awaiting the April data for the FX funds source Repo in USDs from the PBoC after the usage surged massively from the get go of the year. This is a strong hint that the USD is “too expensive”.

Chart 1: USD repo usage through the roof in China