MUFG’s Senior Currency Analyst Michael Wan notes that Asian currencies have benefited from a weaker US Dollar (USD) following the Iran conflict, but stresses growing dispersion across the region. The bank maintains a preference for Chinese Yuan (CNY) and Malaysian Ringgit (MYR) over Indian Rupee (INR), Vietnamese Dong (VND) and Philippine Peso (PHP). Strong export momentum, driven by Artificial Intelligence (AI) and technology demand, underpins Asia’s starting position despite global risks.

Asia FX divergence on Dollar weakness

"It’s also important to remember the starting point of our region and each country. And the starting point is that Asia entered into this conflict with very strong export momentum helped by the continued acceleration in the AI and technology boom. The early export reporters across our region such as Taiwan, South Korea, and Vietnam have seen a meaningful pick-up in the pace of export momentum especially in March, while in China’s case even though year-on-year changes in exports moderated meaningfully we think this was due more to seasonal timings rather than a slowdown."

"South Korea also just released export price data showing a sharp 28%yoy rise for March and likely reflecting a strong acceleration in DRAM prices."

"From a financial market perspective, it’s amazing how much has retracted in terms of the negative hit to risk sentiment post the Iran conflict, and in particular the US Dollar has also pretty much weakened beyond the pre-conflict levels as we speak. Asian currencies have also been helped by the weaker Dollar trend but over in our region we note greater dispersion in outcomes across currencies. Our existing currency preference favouring the likes of CNY and MYR, and seeing underperformance in the likes of INR, VND and PHP continues to play out, even as the exact FX levels will be dependent on global factors as well."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)