MUFG analysts note that Asia FX will stay driven by the US-Israel conflict with Iran and related energy disruptions, while macro policy divergence also gains importance. They highlight modest Asia currency depreciation versus the Dollar so far, but warn that a longer war, higher energy prices and US CPI upside could trigger sharper Asia FX weakness and possible central bank action.

War, energy and data drive Asia FX

"The primary focus for Asia FX market next week likely remains on the development of the war."

"Markets thus far clearly is only pricing in a short-lived war, a short-lived disruption to energy and overall global markets."

"Any drastically different outlook for the future development of the war would mean more disastrous market reaction, including Asia FXs."

"Additionally, with some of Asian FXs’ values at historical low, the potential further trade balance shock should energy prices further rise, may prompt some of Asian central banks to intervention in FX markets, including potential "verbal intervention" from Japanese and South Korean officials to stem the rapid depreciation of the JPY and KRW."

"Most critical is the US CPI on March 11, where an upside surprise would reinforce the Fed’s 'higher-for-longer' stance and pressure Asian EM capital flows, as well as Asian currencies too."

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