Asia FX Talking: North-South divide

Asia hopes a Federal Reserve rate cut will support local currencies and even offer some room for central banks to ease locally.

As one of the region's chief victims of the trade and tech war, Korea, in particular, could use some respite. The won has lurched between a large upside overshoot of our 1180 end 2Q19 forecast in mid-June, moving below 1150 after the G20 meeting, only to throw in the towel again post-payrolls to surge past 1180. The Taiwan dollar has been similarly rocked back and forth. The Chinese yuan has held firm, whilst negotiations with the US re-start.

Outside of North Asian FX volatility, the ASEAN currencies have performed better; the Thai baht despite further political stalemate; Malaysian ringgit – an early easer, with a decent macro story underpinning it and the Indonesian rupiah running a clever game of talking about easing policy but then holding back due to concerns about the external balance.

It’s a similar story for the Philippine peso, but with more actual easing and a little softening as a result. The Singapore dollar has looked more wobbly with chat mounting of an out of meeting policy adjustment from the central bank – we wouldn’t be surprised - and some regional underperformance here is not to be dismissed. 

Elsewhere, India has weathered an election and budget apparently without major incident, which is being reflected currently in a firm rupee. Time will tell if that will last.