Week Ahead FX outlook:
Key FX views:
Markets this week were characterised by better risk sentiment, coupled with key themes around central bank and fiscal policy divergence driving relative FX performance both in Asia, and across other markets more broadly. For instance, we saw underperformance in the Indian Rupee, with onshore spot USD/INR rising from the 89 levels last week to a peak of 90.40, before retracing to around the 90 levels. RBI delivered a 25bps rate cut with very dividend consensus expectations heading into the meeting, while also injecting more liquidity, and overall not pushing back against INR weakness thus far. Overall we remain comfortable with our view for USD/INR to rise above 90 levels with an assumption of a trade deal.
In contrast, the likes of the Australian Dollar, the Japanese Yen, and the Malaysian ringgit did quite well. In what has been quite a turnaround, the Aussie rates market is not pricing in a rate hike in 2026, with recent data suggesting that inflation pressures remain with sticky unit labour costs. The Japanese Yen also saw some support with signs that BOJ may not just hike rates in December but could also keep the room open for further rate hikes based on latest reports. Meanwhile, the Malaysian ringgit continues to outperform in line with our long-standing positive view, and helped by structural reforms, commitment to fiscal consolidation, and also a strong domestic investment pipeline.
Looking ahead to next week, markets will focus on the Fed meeting, where we expect a potentially a divided FOMC decision and as such a hawkish cut. Meanwhile China will release trade data, while we expect the Philippines central bank to cut rates by 25bps, while maintaining a dovish tone given ongoing slowdown in government spending. Meanwhile we will also get US Jobs Openings data which could give more clues on the health of the US labour market.
USD/INR – 90 is the new black? RBI has allowed INR to break above the 90 levels
