Week Ahead FX outlook:
Key FX views:
Across Asia, this week can be considered as a tale of two halves to start the year, with very strong risk sentiment initially benefiting Asia’s equity markets in South Korea and China/Hong Kong tech stocks, before some wobbles towards the 2nd half of the week. For Asia FX perspective, the strong risk sentiment was outweighed by the broader trend of a stronger Dollar during the week, with resident outflows overwhelming foreign equity inflows for the likes of KRW while domestic factors such as fiscal concerns driving underperformance in cases of IDR and PHP. Meanwhile, CNY continues to remain more resilient than other Asian and global peers, helped by likely Dollar conversion by Chinese exporters while the Chinese onshore equity market has also been reasonably robust.
Moving forward, we think Asia FX and rates markets will continue to focus and trade on three key themes, beyond global factors such as US non-farm payrolls driving US rates markets. First, the trend of Asia exports amidst US tariff uncertainty, and how that will impact export-oriented markets in our region. So far, the exports numbers have been very resilient and the lead indicators including industrial metal prices suggest that this strength could still continue into 1H2026. Second, how do local factors in Asian countries including fiscal and macro stability concerns affect FX and rates trajectory, including the space through which Asian central banks can cut rates further in 2026. Lastly, whether Asian policy makers start to push back more forcefully on sharp currency movements, including against excessive FX strength such as the case of THB.
Overall, we think Asia’s exports can remain robust through 2026, and as such we continue to see currencies such as KRW, TWD, and MYR strengthening through the year, with USD/CNY grinding lower towards the 6.80-6.90 handle over time. On this front, the US Supreme Court may rule soon on the legality of tariffs. While this could add more policy uncertainty with the difficulty of refunds and as the Trump administration tries to replicate existing tariffs, we think ultimately the risk of further increases in tariffs in 2026 is much lower for the vast majority of Asian markets, and providing some tailwinds for Asia’s exports and currencies, coupled with the lagged impact of more accommodative fiscal and monetary policy globally.
The best leading indicators of Asia’s exports suggest export activity should remain robust at least into 1H2026
