Asian FX: Elections and oil shifts drive divergence – OCBC

Christopher Wong at OCBC explains that Asian FX performance is diverging following US midterms. Lower Oil prices and softer US Treasury yields are seen as supportive for THB, PHP and INR, while ongoing AI and tech equity weakness and foreign outflows may pressure KRW and TWD. Markets are watching US yields and payrolls for further direction.

Oil, yields and tech shape Asia FX

"Asian FX saw differentiated trades post-midterms. Lower oil prices and US Treasury yields could support recovery in THB, PHP and INR, while continued AI/tech selloff and foreign equity outflows may weigh on KRW and TWD. Focus remains on US Treasury yields and US payrolls tonight."

"The impact of the Democratic sweep in the US midterm elections on Asian FX is largely indirect but could drive further differentiation across regional currencies. Hopes that the election outcome could hasten a de-escalation of the US–Iran conflict and an earlier reopening of the Strait of Hormuz have contributed to the sharp decline in oil prices this week. While Brent has since rebounded somewhat from its lows, sustained lower oil prices should help ease imported inflation and external pressures, providing scope for recovery in oil-sensitive currencies such as THB, PHP and INR."

"US Treasury yields also fell amid expectations that a divided US government could constrain fiscal expansion, while concerns over tighter scrutiny of AI/data-centre investments have weighed on technology shares. The combination of lower oil prices, softer US Treasury yields and a weaker USD should provide some breathing room for Asian FX. However, the ongoing selloff in AI/tech shares could continue to weigh on tech-linked currencies such as KRW and TWD, particularly if foreign equity outflows persist."

"Much of the post-election repricing remains expectations-driven rather than reflecting actual policy changes. Near term, we continue to watch US Treasury yield developments, while US payrolls data tonight may provide further cues on Fed expectations and USD direction."

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