Week Ahead FX outlook:
Key FX views:
Asia FX remains broadly under pressure, as the energy shock will weigh on the current account, put pressure on fiscal balances, and raise inflation risks. The big question is when normal energy flows through the Strait of Hormuz can resume. The supply shock from Hormuz disruptions is simply too large, with limited near‑term alternatives, and the bulk of Middle Eastern oil and LNG exports are ultimately destined for Asia. Against this backdrop, higher US yields and elevated energy prices have pushed several regional currencies (e.g. PHP and INR) to fresh lows against the US dollar. THB (-4.7%), PHP (-4%), and KRW (-3.7%) are hit hardest vs. USD since the start of US-Iran war. These external pressures need to ease meaningfully before broad‑based stability can return to Asia FX. Beyond the immediate energy shock, risks are also building from second‑round inflation effects via higher food costs. Given the high CPI food weights across much of Asia, particularly in the Philippines, Thailand, and Indonesia, currencies in these economies remain vulnerable to inflation‑driven policy constraints. Until geopolitical risks fade, it is difficult to turn constructive on Asia FX. That said, any credible signs of de‑escalation in the Middle East, such as a reopening of Hormuz or a clearer path toward ending the conflict, would be a key catalyst for a more optimistic reassessment. For now, resilience in CNY (one notable exception) has provided an important anchor for regional currencies.
Markets will remain focused on the US‑Iran war, but attention in the week ahead will also turn to high‑frequency activity and sentiment data to assess US economic conditions, the credibility of Japan’s rate‑normalisation path, and the continued divergent trend seen across Asia FX. In Asia, key data includes Taiwan’s industrial production data, India’s PMI, Thailand exports, and Singapore’s industrial production. For the US, data releases for PMIs, jobless claims, and consumer sentiment could help shape near‑term yield and dollar direction, with softer services activity likely capping upside, while Japan’s core CPI is key in determining whether underlying inflation pressures are firm enough to help support an April rate hike amidst higher energy prices and a weaker yen.
Hard to be constructive on Asia FX in the near term given energy exposure to Middle East
