Asia FX: Defensive stance as US rates stay high

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

GDP Impact from Budget Cuts

0.2%

The government's plan to cut spending on the free school lunch program.

Budget Reduction Percentage

15%

The percentage reduction in the 2026 budget due to the spending cuts.

§ 01 Executive Snapshot

What: Broad depreciation across Asia FX currencies observed since the June FOMC meeting.
Who: MUFG analysts, Lloyd Chan, and various Asian currencies including THB, KRW, PHP, INR, and VND.
Why it matters: The depreciation reflects the impact of high US interest rates and differing monetary policies across Asia, which could influence regional economic stability.

The Thai baht (THB), South Korean won (KRW), and Philippine peso (PHP) have led the losses among Asian currencies since the Fed meeting.
The Bank of Thailand is maintaining a growth-supportive monetary policy stance, contributing to the vulnerability of the THB.
Indonesia's recent policy rate hikes and FX support measures have stabilized the rupiah, reducing its depreciation.

The US Federal Reserve's decision to maintain high rates has widened swap rate differentials, putting pressure on Asian currencies.
Each currency's stability is influenced by local policy responses, yield profiles, and external economic factors, such as energy prices.

The ongoing depreciation of selective Asian currencies may lead to increased volatility and impacts on trade dynamics in the region.
Long-term currency stability may hinge on the effectiveness of local monetary policies and external economic conditions, particularly concerning US rates and energy prices.

Potential energy price shocks could exacerbate currency depreciation, particularly in the Philippines and Thailand.
High US rates may continue to pressure Asian currencies, impacting economic growth and fiscal stability across the region.

Monitor the Bank of Thailand's policy decisions and the potential for further tightening from the Bangko Sentral ng Pilipinas (BSP).
Watch for any significant changes in US monetary policy that could influence swap differentials and Asian FX stability.

§ 07

What has been observed in Asian FX currencies since the June FOMC meeting?

There has been broad depreciation across Asian FX currencies, reflecting the impact of high US interest rates.

Who are the analysts mentioned in the article regarding the Asian currencies?

The analysts mentioned are from MUFG, specifically Lloyd Chan.

How has the Bank of Thailand's policy affected the Thai baht?

The Bank of Thailand's growth-supportive monetary policy stance has contributed to the vulnerability and depreciation of the Thai baht.

Why is it important to monitor US monetary policy in relation to Asian currencies?

US monetary policy influences swap rate differentials, which can pressure Asian currencies and impact regional economic stability.