Asia FX: Lower US yields offset Oil risk – MUFG
MUFG’s Lloyd Chan notes that the Korean Won (KRW) and Taiwan Dollar (TWD) are leading Asia FX gains as softer US yields and a resilient technology cycle support sentiment.
Lloyd Chan of MUFG points out that the Korean Won (KRW) and Taiwan Dollar (TWD) are leading Asia FX gains due to lower US yields and a robust technology sector. In Indonesia, the Indonesian Rupiah (IDR) may remain stable at 5.75% by Bank Indonesia (BI), despite tighter US Dollar liquidity and a weaker trade balance. As of August, markets are becoming more selective in their Asia FX outlook, with KRW and TWD experiencing the most significant gains.
This suggests that investors favor currencies that benefit from a softer US rates environment and a strong tech cycle. Despite Brent crude prices hovering around $90/bbl, several ASEAN currencies have strengthened month-to-date, implying that lower front-end US yields are contributing to regional FX gains. However, a potential rise in Brent prices could negatively impact the Thai baht and Philippine peso, both of which are experiencing economic slowdowns.
In Indonesia, the stabilization of the rupiah, aided by BI's policy measures, may enable BI to maintain the policy rate at 5.75% without changes. Nonetheless, the weakened trade balance and tight US Dollar liquidity conditions in Indonesia warrant caution regarding the rupiah's future. Meanwhile, GBP/USD is showing signs of recovery near 1.3550 in European trading hours on Wednesday, although the UK annual Consumer Price Index (CPI) inflation did not provide any boost to the British Pound.
EUR/USD is moving up toward 1.1600 in the European session, with US Dollar yields falling due to weak economic data and awaiting insights from ECB President Christine Lagarde's speech and the FOMC Minutes. Gold has lost some of its early gains and is trading close to the lower end of its daily range, below $4,450, as traders await further guidance on the Federal Reserve's future policy stance.
Shiba Inu, a meme coin, has seen a slight recovery, trading around $0.0000044, after finding support earlier in the week. The coin's sentiment has improved due to rising social dominance, positive funding rates, and increasing long positions from bullish traders.
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