Ahead Today
G3: President Trump’s speech, initial jobless claims,
Asia: Singapore PMI
Market Highlights
Markets are trading a familiar pattern of headline relief versus unresolved conflict in the Middle East. President Trump’s signalling that the Iran conflict could be short-lived has helped pull equity volatility lower and triggered a modest rebound in equities, but there is still no credible or operational de-escalation path to the US-Iran conflict.
With the Strait of Hormuz effectively shut and oil supply disruptions already material, the macro shock is no longer just geopolitical risk premium, but a real energy supply shock. The IEA reported that Gulf nations have cut oil production by at least 10mb/d, or about 10% of world demand. Brent prices remain around $100/barrel, while US gasoline prices have surged towards $5/gallon. That keeps inflation risks alive, limits the scope for sustained risk on, and argues against betting broad USD weakness at this stage. Moreover, on the macro front, ADP employment rose 62k, beating market expectations of 40k, retail sales ex-auto and gas were up by 0.4%mom vs. 0.3% consensus, while the ISM survey shows manufacturing activity in expansion, but ISM prices paid increasing further.
Regional FX
Against this global backdrop, we remain cautious on broad Asian FX despite intermittent risk rallies, stay biased toward USD strength in an environment of energy disruption, and differentiate relative currency impact where fiscal and policy asymmetries are clearest.
Indeed, fiscal space has become a key differentiator for Asia FX, a theme we highlighted in our annual 2026 FX outlook report. Higher and more persistent energy prices place pressure on economies that rely heavily on fuel subsidies but lack fiscal headroom to sustain those subsidies. Economies with tighter fiscal debt space, such as the Philippines and Thailand, are more vulnerable. Malaysia is an exception, though, as higher energy prices boost petroleum revenues, helping offset the oil import bill and sustain RON95 fuel subsidies.
Thailand stands out as one of the more vulnerable currencies in this environment. Rising fuel costs, limited fiscal space, weak domestic demand, and a tourism-heavy growth model leave the economy exposed to an energy-driven risk off shock. Importantly, the policy reaction function is not baht supportive: the Bank of Thailand appears willing to tolerate a weaker currency. With front-end funding costs still cheap, USDTHB remains an efficient expression of energy led risk off themes. While ceasefire headlines can still trigger short covering rallies, these are likely to be tactical.
Indonesia is more nuanced. Bank Indonesia has become increasingly proactive and sophisticated in managing rupiah volatility. The shift toward allowing BI’s foreign currency securities to be used as collateral in FX repo transactions should help dampen disorderly moves. That said, risk premia toward Indonesia have risen, as reflected by widening CDS spreads, and fiscal pressures are growing, necessitating spending cuts to maintain energy subsidies. Strategically, this supports fading USDIDR spikes near 17,000 in the near term, while maintaining upside hedges for a scenario where oil remains structurally high and risk sentiment weakens further.