APAC FX: CNY and JPY dynamics shape flows – BNY

BNY’s Geoff Yu notes that APAC (Asia-Pacific) currencies remains underowned outside the Korean Won (KRW) and Japanese Yen (JPY), as investors revisit the region for diversification but remain wary of inflation spillovers from China. Yu expects further Chinese Yuan (CNY) appreciation, yet not enough to ease pressure on other APAC currencies, and highlights rising intervention risks and the need for greater vigilance on pass-through from CNY, JPY and US Dollar (USD).

Selective support for APAC currencies

"The search for diversification continues amid resurging tensions over Iran and fears over equity concentration risk, and the market is once again revisiting APAC FX."

"A process that we felt would occur in any case has been accelerated by the conflict, and CNY ended last week as the best-bought currency in EM APAC, even though the net gain was marginal."

"Based on current flow figures, it appears markets fear the adverse scenario more in the near term."

"Meanwhile, outflows suggest the market will only hold currencies (or be unhedged in underlying markets) where there is a clear idiosyncratic narrative, whether AI-driven growth (South Korea), or more assertive intervention (Japan)."

"We continue to see CNY appreciation, but not at a pace that will provide relief for other APAC currencies."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)