Week Ahead FX outlook:
Key FX views:
Markets remain focused on developments in the Iran conflict and the spillover impact to oil prices and to Asian FX and rates. Overall, Asia stands out as one of the most negatively impacted regions from disruptions from the Strait of Hormuz, with 90% of the oil through the Strait going to our region. Meanwhile, Asia imports close to 60% of its crude oil, 22% of its refined petroleum, 20% of its natural gas, and more than 40% of other gases such as LPG from the Middle East. Overall, it is not just about oil prices, but about potential energy shortages and possible indirect spillover impact from supply chain disruptions which raises the left tail risks for Asia’s growth and inflation moving forward from this crisis.
Looking forward, next week is dominated by G10 and Asia central banks alike grappling with the inflationary implications of the recent energy shock, even as domestic growth momentum remains uneven. In Japan, the Bank of Japan is likely to hold policy steady, but the tone of its communication will be critical: surging oil prices complicate the inflation outlook and could pull forward the next tightening step, with April increasingly seen as the likely inflection point. Meanwhile, the Federal Reserve and the European Central Bank are both expected to hold rates steady, with investors focused on guidance around the balance between inflation risks and slowing growth momentum. Elsewhere in the region, Indonesia and Taiwan are expected to remain on hold, balancing currency stability and growth against rising external price pressures, while South Korea’s labour market data should reinforce the picture of policy‑supported stability rather than a private‑sector‑led upswing. Last but not least, the consensus expects the Reserve Bank of Australia to deliver a second consecutive rate hike, prioritising inflation risks amid a still‑tight labour market amidst the Iran conflict.
Asia is dependent on the Middle East for imports across a wide spectrum of products including crude oil and LPG
