For better or for worse, our new FX forecast profile published overnight shows a stronger Dollar and weaker Asian currencies relative to our previous expectations driven by the Middle East conflict, but with an implicit base case assumption of a fading of oil prices in 2Q2026. Importantly as well, we think geopolitical risk premia will linger and will not completely fade, and as such the levels of Dollar strength/Asian FX weakness has been front-loaded generally into 1H2026 (see Global FX Monthly March 2026)
The principles we highlighted in our previous note still holds for Asia FX and rates markets (see What if oil prices spike further for Asia?). We think the oil sensitive currencies such as INR, PHP and KRW are more vulnerable, and perhaps this time around THB could also fall into the mix given a combination of tourism disruption and increasing curbs on gold transactions recently announced by the central bank this week. This would be even more so if oil prices were to spike further towards the US$90/bbl-100/bbl levels on a sustained basis. Meanwhile, the likes of MYR and CNH will likely be more resilient in a Asia FX context. We think Asian central banks will unlikely hike rates but sustained oil price increase will likely result in some central banks such as the Philippines and Indonesia pausing on rate cuts, while markets will likely further price out rate cuts from the likes of India and South Korea.
