Asian currencies face a bumpy ride towards recovery

Asian currencies face a bumpy ride towards recovery

  • The USD has peaked. Its descent, though uneven, will benefit battered Asian currencies.
  • China’s reopening provides tailwinds for Asia via export, commodity, and tourism demand. Countries that historically relied on Chinese demand will benefit more.
  • Asian central banks are beginning to diverge in their policy stances as their respective inflation outlooks differ. A longer-than-expected tightening cycle will prop up their notes.
  • Asian currencies are likely to trend upwards against the Dollar in general, although the magnitude and timing of their movements will vary.

Political risks in asia: where could the surprises come from?

  • Despite Xi’s dominance, the party-state will face subtle but substantial forms of dissent and pushback. Beijing, in turn, will double down on driving growth to keep anger at bay.
  • Despite underlying risks, we are cautiously optimistic about political developments in Taiwan, Malaysia, and Thailand as pragmatism allows for navigating uncertainty.
  • India and Indonesia are sources of potential downsides, with identity politics and economic and foreign policy nationalism being sources of potential turbulence.

Regional updates

  • China: the lunar new year spending boost might be temporary. Low inflation will allow monetary policy to remain accommodative.
  • India’s central bank continued to tighten but at a slower pace. Sticky core inflation and strong demand conditions mean that it still has some way to go before halting rate hikes.
  • Malaysia experienced strong headline GDP growth, but this masks an underlying slowdown. Political stability is a welcome boon given the uncertain outlook.
  • Taiwan’s exports fell by 21.2% y/y, with the semiconductors industry taking a similarly large hit. A festive spike in inflation complicates the central bank’s calculus.
  • Thailand gears up for a potentially-decisive poll in May, with hopes that the likely winner, Pheu Thai, cuts a deal with the monarchy-military establishment to allow it to govern.
  • Inflation in the Philippines still shows no sign of peaking. Further tightening is likely.

Read more: CAA-Weekly-13-Feb-2023.pdf