Week Ahead FX outlook:
Key FX views:
The coming week is heavily Asia‑centric, with geopolitics, inflation dynamics and monetary policy in focus across the region. In particular, we expect the Bank of Korea to keep rates on hold with the tone likely to indicate an extended policy rate hold through 2026 given rising house prices and a volatile won, while the BOK’s growth forecasts could also be upgraded in the meeting. Meanwhile, we expect the Bank of Thailand to cut rates by 25bps given negative inflation and a generally weak growth outlook notwithstanding better relative clarity from the recent election results. We also expect China’s loan prime rates to remain unchanged, with more clarity on China’s monetary policy direction potentially expected after the National Party Congress, Two Sessions and the publication of the full 15th Five-Year Plan in March.
Meanwhile, Australia’s January CPI will be the first test following the Reserve Bank’s recent rate hike, with inflation expected to ease but remain above target, reinforcing a hawkish bias while keeping policy on hold. In Japan, Tokyo CPI should soften modestly reflecting some fading of government subsidies. For JPY, the important dynamic remains on PM Takaichi’s fiscal policy direction and with that also whether there is any pushback from the government on monetary policy direction of BOJ. Markets have been relatively sanguine since the recent elections, but key risk events moving forward could include the debate on the Budget coupled with appointment of a new BOJ Board Member to replace Asahi Noguchi, which could come as soon as next week.
Elsewhere in Asia, India’s fourth‑quarter GDP is projected to slow with softer export growth driven by the lagged impact of tariffs, but supported by resilient domestic demand. From an FX perspective, INR remains on the backfoot given continued capital outflows driven by the PE/VC exit cycle, still soft FII inflows despite the recent trade deal and also recent concerns around the impact of AI on India’s IT services sector. We see USD/INR rising towards the 93.00 handle over the medium-term, although some near-term relief in March could be possible on better seasonality and some expected inflows.
