Asia FX: Defensive Dollar bias with KRW and INR vulnerable – TD Securities

TD Securities’ Alex Loo and Jayati Bharadwaj argue that Asia faces a dual shock from higher Oil prices and rapidly depleting inventories, hitting growth and lifting inflation. They see Asian central banks prioritizing growth, limiting rate hikes. Asia FX and equities remain pressured, with KRW and INR likely to stay weak, while SGD and CNY outperform and a defensive long USD bias dominates near term.

KRW and INR seen underperforming peers

"Asia faces a severe dual shock from the current energy crisis. Oil prices are up sharply, inventory buffers are rapidly depleting, and Asia—highly dependent on imported energy via the Straits of Hormuz—is disproportionately exposed."

"This creates a sharp growth slowdown (at least ~1.0% GDP hit) alongside rising inflation, with risks of recession in energy-intensive economies like South Korea and Thailand."

"Asian central banks are in a bind and unlikely to hike despite inflation pressure."

"The energy-driven terms-of-trade shock, USD positioning correction, accelerating portfolio outflows and Asia central banks' hesitance to hike should point to continued weakness in KRW and INR."

"In contrast, SGD and CNY are relative winners due to its FX policies, reserves, and bond inflows."

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