EM Asia FX and Rates Views

Asian central banks are actively responding to currency depreciation and inflation through interest rate hikes and capital flow management. However, sustained recovery for Asian FX likely depends on the resolution of the Middle East conflict and associated energy price pressures.

Key Takeaways

• 1.Asian central banks are increasing policy rates and implementing FX measures to counter currency weakness and inflation induced by the Middle East conflict.
• 2.Significant appreciation of Asian currencies against the USD is unlikely without a resolution to the energy shock and Middle East conflict.
• 3.The CNY remains on a path of gradual appreciation, while tech-exposed currencies like TWD, KRW, and MYR are viewed as likely outperformers within EM Asia.

Table of Contents

• Asian central banks stepping up response to stem FX weakness
• Policy action helps to stabilize Asian FX, but significant appreciation vs. USD unlikely without resolution of energy shock.
• China - Policy anchor behind the stronger CNY and lower rates.
• South Korea - AI-driven current account surplus being offset by equity outflows.
• Taiwan - Stellar exports drive growth and TWD's relative outperformance.
• India - FX regulations help to stabilize the INR; we recommend going short THB/INR.
• Indonesia - BI's larger than expected policy rate hikes and FX measures help to stem IDR depreciation.
• Philippines – BSP likely to remain vigilant on inflation and maintain hawkish bias.
• Malaysia – Positive MYR, but cautious of rising political risk.
• Singapore – MAS to stay on hold.
• Thailand – THB should be remain a laggard.
• Summary tables
• Disclosure Appendix

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