Ahead Today
G3: Canada CPI, Eurozone Autumn forecasts
Asia: India Trade, Thailand GDP, PH remittances
Market Highlights
Asia’s markets entered this week with a risk-off tone, but with significant and idiosyncratic moves in the Asia FX space especially in the likes of North Asian currencies such as KRW and TWD – but for different reasons. Taiwan’s 1-month NDF rose as much as 2% on Friday night, as the US Treasury and the Taiwan central bank released a joint statement saying that they will avoid manipulating exchange rates, with both sides saying that any macroprudential or capital flow measures including on pension fund investment should not target exchange rates for competitive purposes. In addition, Taiwan will now commit to publishing FX intervention data on a quarterly basis from the current semi-annual period. In a statement, Taiwan’s CBC emphasized that the US Treasury never requested appreciation of the New Taiwan Dollar, and that this was part of general consultation on exchange rates between both sides, while also rebutting a recent report by the Economist magazine on the undervaluation of the TWD. Meanwhile, the South Korean won also strengthened significantly, with signs that authorities might utilise more tools to pushback against KRW weakness including through increasing hedge ratios from the National Pension Service. With the scope by NPS to raise the strategic hedge ratio up to 10% from the base rate of 5%, this may result in as much as US$25bn in additional hedging needs.
Meanwhile, President Trump exempted some key agricultural imports like coffee, cocoa, bananas, beef, and other food products, in a sign that perhaps tariffs are having a bigger negative impact on US consumers and key constituencies than the administration would publicly admit.
Our analysis of these recent tariff exemptions on food products shows that the Philippines and Indonesia, and to a small extent Vietnam will benefit more from these recent exemptions, and may as such provide some relief to both PHP and IDR at the margin, especially given uncertainty around the conclusion of trade deals for both. In particular, up to 6% of the Philippines’ total exports to the US including items such as coconut oils will now be exempt, while in Indonesia more than 3% of its exports to the US will now be exempt helped by products such as coffee. Meanwhile, Vietnam will also see some relief from items such as coffee and other fruit exports to the US, and given Vietnam’s greater reliance on exports as a share of GDP this adds up to around 0.4% of GDP worth of food exports to the US now being exempt.
From an FX perspective however, the bigger macro driver for both PHP and IDR is still domestic issues, including fiscal uncertainties in Indonesia and corruption issues around flood control projects and the negative spillovers to government spending in the Philippines. We are nonetheless hesitant to be too bearish on PHP at current levels of the 59 handle and hence look for PHP to come off gradually towards the 58 mark helped over time by a weaker Dollar and also some eventual improvement in government spending from 1H2026.
