Asia FX: Regional gains on de-escalation hopes – MUFG

MUFG’s Lloyd Chan notes that easing Middle East tensions have supported Asian currencies against the Dollar and highlights that further de-escalation could extend Asia FX gains. Chan remains constructive on Chinese Yuan (CNY), Malaysian Ringgit (MYR) and Singapore Dollar (SGD), citing supportive fundamentals and technicals versus the Dollar. He expects the Ringgit to benefit from CNY strength, with today’s Bank Negara Malaysia (BNM) meeting seen as a non-event as the policy rate is likely held at 2.75%, while cautious on further USD/IDR upside, citing Bank Indonesia’s (BI) stabilisation steps

Ringgit catch up, IDR supported

"Asian currencies strengthened against the dollar, led by KRW (+1.8%) and THB (+1.5%). Further de-escalation in the Middle East, such as Iran accepting the US proposed deal and a gradual reopening of the Strait of Hormuz, could continue to support gains in Asia FX. We maintain a constructive view on CNY, MYR, and SGD, where both fundamentals and technicals point to further upside against the dollar."

"The ringgit should continue to play catch up with CNY strength. Today’s BNM policy meeting is likely to be a non-event, with the central bank expected to keep the policy rate unchanged at 2.75%."

"By contrast, we remain cautious on further USD/IDR upside. Bank Indonesia has stepped up stabilisation efforts, including tightening limits on USD purchases without underlying documents to $25,000 from $50,000 previously. This will help to curb speculative activity."

"In addition, we see markets underpricing the upswing in non- energy commodity prices, which should provide an additional tailwind for Indonesia’s terms of trade."

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