Heightened US-Iran tensions kept Brent elevated into Friday’s close, extending the oil headwind confronting Asia FX. Iran has warned that renewed US-Israeli strikes could prompt a broader response, while diplomatic efforts continue in parallel. For markets, the distribution of oil risks remains asymmetric: diplomacy could compress some geopolitical premium, but renewed military escalation or further disruption around the Strait of Hormuz could generate a sharper upside move.
Against this backdrop, Asia FX should remain cautious into this week’s US labour data. Resilient employment would reinforce expectations for further Fed tightening, while elevated oil prices provide an additional drag on the region’s energy importers. The combination of higher US yields and expensive oil would remain an unfavourable backdrop for regional FX.
Meanwhile, the technology upcycle remains an important source of relative strength for South Korea and Taiwan. South Korea’s October exports surged 93.7%yoy, generating a $42.5bn trade surplus, while Taiwan’s Q3 GDP expanded 14.36%yoy as growth broadened beyond exports into investment and consumption, adding to the case for a potential December CBC hike. For FX, the macro backdrop remains supportive of KRW and TWD, but the transmission into currency strength is being diluted by recent net foreign equity outflows. We therefore see stronger fundamental support rather than an outright bullish signal, with the flow backdrop remaining the key constraint.
A slew of regional news and data were also released last Friday, but the most notable one was from China, as the PBOC announced its overnight reverse repo rate at 1.25%, below the previous seven-day benchmark of 1.40%. It will conduct overnight operations daily from today. This change makes the overnight reverse repo rate the policy anchor. The earlier-than-expected transition comes amid property-related credit concerns and weak equities, putting the emphasis on cheaper and more dependable short-term liquidity.
Bank of Japan held its policy rate at 1.25% as markets had expected, but they also announced a faster pace of ETF sales. Additional revenues from the sale could give the government fiscal room for spending. This could help finance Prime Minister Takaichi’s spending agenda, including economic-security initiatives, although the allocation will be considered before FY2027-28’s budget draft’s expected release in late December. Governor Ueda retained his hawkish policy bias, highlighting upside inflation risks and still-accommodative financial conditions.
External balances offer less support for THB and PHP despite strong regional export growth. Thailand’s September current account swung to a $1.63bn deficit as foreign companies repatriated their profits, tourism slowed, and transportation costs increased. The Philippines’ trade deficit also widened to $5.15bn from $4.3bn, despite exports rising 35.6%yoy, keeping its external funding needs in focus ahead of Thursday’s CPI release. Weaker external balances continue to leave THB and PHP with less protection against elevated oil prices and any renewed dollar strength
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