Our view for Asia FX to generally strengthen against the Dollar are not just driven by the US of course, and the Asia exports and growth story is just as important, as are changes in financial and capital flows including into the likes of China.
The macro datapoints out so far is indicative of better export momentum in December, with Vietnam’s exports surging 24%yoy led by continued strong performance in electronics and machinery. Meanwhile, South Korea’s exports rose by 13%yoy in December, led by a more than 40%yoy surge in chip exports. While we will get more details certainly from the early export reporters such as Taiwan and China in the days ahead, the overall picture emerging we think is still supportive of Asia’s exports doing quite well, given the pickup in lead indicators we track such as industrial metal prices and to a smaller extent the PMIs. There are risks of course including on how tariffs may play out but we think that the chance of tariffs rising sharply from here is lower now given the current détente between US and China coupled with some signs that Trump is at the margin reducing or at the very least delaying some tariffs in the likes of the furniture and agriculture sector perhaps due to pressure on lower income consumers in the US.
Dispersion driven by local factors will become more important for Asia FX and rates markets in 2026. For instance, with capital flows remaining soft into India given still high relative valuations in equity markets coupled with a strong IPO exit pipeline, we think that INR can continue to underperform moving forward (see INR Balance of payments remains unbalanced). For the likes of Vietnam, while exports are strong, the more important story is a possible overheating of the economy with the strong 8%yoy 4Q2025 GDP growth indicative of that possibility. While we remain positive on Vietnam’s macro outlook given the structural reform momentum, from a FX perspective we remain biased to see USD/VND rise over time to 26,800 through 2026 and for the SBV to hike rates later this year – the only Asian central bank to do so (see Vietnam – Modest risk of overheating amidst very positive structural reforms). Meanwhile, domestic policy uncertainty in Indonesia should imply IDR remains on the backfoot through 2026, with the soft import data out indicative of a still weak outlook for domestic demand (Indonesia – BI finds itself in a delicate balancing act).
Overalll, we continue to remain positive on the likes of KRW, MYR, TWD and CNY, and we see USD/CNY moving below 7 handle over time. We as such also see INR, VND and IDR underperforming through 2026 (see Asia FX Outlook 2026: Returning to divergent fundamentals).
