Ahead Today
G3: US PPI, Germany CPI
Asia: Trade data from Philippines, Thailand, and HK; India Q4 GDP
Market Highlights
Global markets are closely watching developments in the US–Iran nuclear talks. A breakdown in diplomacy that escalates into a prolonged Middle East conflict would raise the risk of an oil price shock, reigniting global inflation pressures and worsening the terms of trade for Asia’s net oil importers.
President Trump has reportedly set a deadline of around 1–6 March for Iran to reach a deal, alongside threats of military action. In parallel, the US has been building up its military presence in the region. That said, recent headlines have been more constructive: Oman’s foreign minister, who is mediating the talks, indicated that discussions ended with significant progress and that technical negotiations will continue next week. In contrast, Iran has described the talks as “intense and serious.”
From an Asian FX perspective, history suggests that an oil price shock would likely trigger broad regional weakness, but with notable differentiation. During the first two weeks of the Russia–Ukraine war in 2022, currencies such as KRW, INR, PHP, and THB underperformed, reflecting their sensitivity to higher energy import costs and risk-off flows. In contrast, MYR outperformed on the back of rising oil prices, while CNY remained relatively resilient.
Regional FX
The policy easing cycle across several Asian economies appears to be nearing its end. As a result, further US rate cuts would help narrow interest rate differentials, which should broadly support Asian FX, absent an adverse oil price shock.
In South Korea, the Bank of Korea held its policy rate at 2.50% and struck a more constructive tone by raising its 2026 growth forecast to 2.0% from 1.8% previously. The BOK also signalled an extended pause, indicating rates are likely to be kept on hold over the next six months. Earlier this week, the Bank of Thailand cut rates by 25bp to 1.00%, but emphasized that monetary policy is sufficiently accommodative while underscoring the need to preserve policy space. At current levels, the policy rate is only 50bp above the 0.50% trough seen during the Covid period, reinforcing the sense that the BOT easing cycle has likely ended.
In Malaysia, the government successfully sold MYR5bn of 5-year government bonds (MGS) at a bid-to-cover ratio of 2.92 and an average yield of 3.359%, highlighting healthy investor demand. A narrowing rate differential with the US, alongside prospects of further ringgit appreciation, should continue to underpin demand for Malaysian government bonds.
In contrast, sentiment toward the rupiah is likely to remain cautious. While S&P Global Ratings has affirmed Indonesia’s sovereign rating at BBB with a stable outlook, it flagged risks from rising fiscal pressures. This follows Moody’s recent lowering of Indonesia’s sovereign outlook to negative, reinforcing near-term concerns around the fiscal outlook.