Ahead Today
G3: US initial jobless claims
Asia: Singapore industrial production, HK trade
Market Highlights
We maintain a defensive stance on Asia FX amid ongoing uncertainty surrounding the US-Iran conflict. In the absence of credible de‑escalation and normalization of energy flows through the Straits of Hormuz, elevated oil prices and higher US yields are likely to keep the USD supported, while oil‑importing Asian currencies remain vulnerable. Indeed, Brent prices remain above USD100/bbl, albeit easing from recent highs, keeping global inflation risks skewed to the upside. At the same time, US Treasury yields stay elevated, with the 2‑year around 3.9%, reinforcing USD carry and yield support. Market pricing continues to reflect expectations of further policy tightening across the Asia region, rather than imminent easing. This is most pronounced in the Philippines.
Recent media reports suggesting a potential unilateral ceasefire announcement by President Trump may offer reprieve for regional risk sentiment. However, without a mutually agreed ceasefire framework with Iran, compliance risks remain high. Any announcement not accompanied by tangible de‑escalation on the ground, such as restored energy transit through Hormuz, is unlikely to materially weaken the USD. FX volatility remains elevated relative to pre‑war levels, albeit moderating modestly in parts of Asia, underscoring how fragile risk appetite still is.
Regional FX
For Asia FX, external pressures are still dominant. Higher US yields and elevated energy prices have pushed several Asian currencies to fresh lows versus the USD since the conflict began. THB (‑4.8%), PHP (‑4.1%), and KRW (‑4.1%) have been among the weakest performers, reflecting sensitivity to oil prices and risk sentiment.
Inflation risks across Asia remain asymmetric to the upside, driven by energy prices and the risk of second‑round pass‑through into transportation and food costs. This is particularly relevant given high food CPI weights in regional economies such as Thailand, India, Vietnam, and Philippines (>30% weight).
External pressures would need to ease meaningfully, via lower oil prices, falling US yields, or credible geopolitical de‑escalation, before broader stability in Asia FX can be restored. Any credible signs of de‑escalation, such as a reopening of Hormuz or a clearer pathway toward ending the conflict, would be a key catalyst for reassessment. For now, resilience in CNY remains a notable anchor for the region.