Asia FX: Defensive stance as US rates stay high – MUFG

Lloyd Chan at MUFG notes broad depreciation across Asia FX since the June FOMC meeting, driven by widening swap differentials and sustained high US rates. The bank keeps a defensive bias on selective Asia currencies. THB, KRW and PHP have led losses, while INR and VND have been more stable, reflecting differing yield profiles and policy responses across the region.

Selective Asia currencies under pressure

"Against this backdrop, most Asia FX have depreciated broadly since the FOMC, reflecting widening swap rate differentials and the persistence of a high-for-longer US rate environment. We maintain a defensive bias on selective Asia FX in the near term."

"We have observed that THB, KRW, and PHP have led regional losses since the Fed meeting. The Thai baht remains particularly vulnerable as a low-yielding currency, while the Bank of Thailand continues to prioritize a growth-supportive monetary policy stance."

"Meanwhile, the Philippine peso, despite offering relatively higher yields, has not been sufficiently insulated from depreciation pressures given elevated US rates. That said, the scope for further weakness could be moderated should the BSP extend policy tightening, although this remains contingent on external factors, particularly the absence of another energy price shock."

"In Indonesia, Bank Indonesia’s recent policy rate hikes and FX support measures have helped to reduce currency volatility, which in turn should slow the pace of rupiah depreciation."

"Additionally, the government’s plan to trim spending on the free school lunch programme, equivalent to roughly 0.2% of GDP or 15% of the 2026 budget, could provide modest fiscal support for the currency at the margin."

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