Asia FX: AI-driven support for regional currencies – MUFG

MUFG’s Michael Wan highlights the impact of improved risk sentiment and AI optimism surrounding Meta’s Muse on the regional currencies and Asia’s FX and rates. He suggests that Asia’s economy could benefit from ongoing infrastructure development linked to AI, with an increasing focus on applications and inference. MUFG remains optimistic about Asia’s AI story, anticipating steady growth despite a slight slowdown in exports by 2027.

They continue to support the KRW, TWD, MYR, and SGD currencies, while also expecting CNY to maintain stability ahead of the Trump-Xi summit. Improved risk sentiment led to a slightly stronger dollar and stable DM yields, as Meta’s Muse generated positive AI outlooks and favorable US-China talks. Despite the greenback’s strength, AUD/USD has dropped to its three-day lows, while USD/JPY experiences modest gains in the Asian session, limited by intervention fears and the Bank of Japan’s dovish rate hike to a 31-year high.

Meanwhile, gold shows resilience, nearing the $4,400 mark amid mixed US Treasury yields and geopolitical uncertainty. The BoJ's decision to raise its short-term interest-rate target to 1.25% reflects a shift towards normalizing monetary policy.