CNY Leads Asian Currencies, with FX Views Clearly Diverging Across the Region

Overview

This report is a monthly Emerging Asia FX strategy update covering CNY, HKD, INR, IDR, KRW, MYR, PHP, SGD, TWD, and THB. Its core view is that CNY will lead regional performance, while currencies across the region will diverge based on the USD, oil prices, capital flows, rate differentials, and domestic policy differences.

Core views

For CNY, the report revises its end-2026 USD/CNY forecast from 6.70 to 6.60, arguing that returning export FX conversion flows, CNY undervaluation, and trade-imbalance adjustment pressures provide appreciation drivers. HKD remains neutral, but widening Hong Kong-U.S. rate differentials will enhance carry-trade appeal, and USD/HKD may move toward 7.85. INR is expected to remain range-bound, supported by central-bank smoothing operations, capital inflows, and carry appeal. IDR faces risks from a more dovish policy shift and USD strength; PHP is highly exposed to oil prices and U.S. rate repricing; THB is constrained by current-account seasonality and a wider deficit. KRW is revised to neutral after its recent rebound, with flows expected to become more balanced.

Analysis framework

The report combines exchange-rate forecasts and comparisons with forward prices, FX COMPASS long-run equilibrium valuation, NEER/REER valuation ranges, technical indicators, option-implied volatility and risk reversals, cross-currency basis, capital flows, current accounts, and monetary policy.

Methodology notes

• Valuation ModelFX COMPASS

  Long-run equilibrium exchange-rate valuation

  Assesses long-run fair value based on exchange rates consistent with equilibrium current accounts, helping identify currency overvaluation or undervaluation.

• Effective Exchange RateNEER/REER

  Nominal and real effective exchange-rate valuation

  Compares current effective exchange rates with historical ranges to assess relative currency competitiveness and valuation deviations.

• Technical AnalysisRSI and MACD

  Momentum and overbought/oversold assessment

  Used to assess whether short-term positioning, momentum, and exchange-rate trends are excessively extended.

• Derivatives MarketOption-implied volatility, risk reversals, and cross-currency basis

  Tail risk and funding costs

  Uses option skew and basis to observe market pricing of USD appreciation, local-currency depreciation, and offshore/onshore funding costs.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CNY/CNH

  Bullish CNY, with USD/CNY expected to decline to 6.60

  Strengths

  Returning export FX conversion flows, undervaluation, current-account surplus, and external trade-imbalance adjustment pressures.

  Weaknesses

  Short-term technical and forward-pricing signals are mixed.

  Comparison

  The year-end forecast is below the forward rate of approximately 6.67 and the Bloomberg consensus of 6.70 cited in the report.

  Risks

  Weak Chinese domestic demand, deflation, and debt-deflation risks could trigger capital outflows; oil shocks, rising long-end yields, and trade friction also pose risks.

• HKD

  Neutral, with USD/HKD potentially approaching 7.85

  Strengths

  High credibility of the linked exchange-rate system, while low volatility and Hong Kong-U.S. rate differentials make USD/HKD carry attractive.

  Weaknesses

  HKD itself is constrained by the linked exchange-rate system, limiting directional scope.

  Comparison

  The report's forecast path is above forwards, reflecting its view that the pair will approach the weak-side Convertibility Undertaking.

  Risks

  A more hawkish Fed, further USD strength, and changes in IPO-related liquidity demand.

• INR

  Neutral, expected to remain range-bound

  Strengths

  Central-bank exchange-rate smoothing, inflows into bonds and deposits, services exports, and relatively attractive carry.

  Weaknesses

  The current-account deficit will widen due to seasonal factors.

  Comparison

  Long-term model fair value is 91.88/USD, and the report views INR as approximately 4% undervalued versus spot.

  Risks

  Oil prices remaining above USD80, geopolitical uncertainty, and resulting equity and bond outflows.

• IDR

  Bearish IDR, with USD/IDR expected at 18,000 by year-end

  Strengths

  Central-bank rate hikes, efforts to attract capital inflows, and intervention measures provide near-term exchange-rate support.

  Weaknesses

  If policy turns dovish in favor of growth targets, rate support will weaken; corporate USD demand also limits appreciation.

  Comparison

  Model fair value is 18,344/USD, and the report views IDR as approximately 3% overvalued near spot.

  Risks

  USD strength, weaker global risk appetite, rating downgrades triggered by fiscal concerns, and maturing forward USD sales.

• KRW

  Neutral, with a year-end USD/KRW forecast of 1,410

  Strengths

  Reduced rebalancing outflows and hedging pressure, improved foreign equity inflows, and support from growth and relative monetary policy.

  Weaknesses

  Technical indicators show overbought conditions after the recent sharp rebound, while exporter hedging has increased.

  Comparison

  The year-end forecast is revised sharply from 1,560 to 1,410; the model shows KRW may be undervalued against the USD by as much as 16%.

  Risks

  Fed rate hikes and a resumption of domestic securities-investment outflows.

• MYR

  Neutral, tracking USD beta in the near term and remaining range-bound

  Strengths

  External-balance surpluses, BNM oversight of USD hoarding and exporter FX conversion, and positive correlation with CNY.

  Weaknesses

  Political uncertainty and a potential early general election could amplify volatility; high rate differentials make MYR carry negative.

  Comparison

  The report forecasts USD/MYR at 4.10 in Q4 2026, close to the forward rate of 4.08.

  Risks

  Semiconductor tariff risks, tariff impacts on trading partners, and political events.

• PHP

  Bearish PHP

  Strengths

  Central-bank smoothing operations and rate hikes provide marginal support.

  Weaknesses

  The external deficit is sensitive to oil prices and U.S. rate repricing.

  Comparison

  The report groups PHP with IDR and THB as bearish currencies.

  Risks

  Oil-price volatility, rising U.S. rates, and current-account deterioration.

• THB

  Bearish THB, with USD/THB expected at 33 by year-end

  Strengths

  The worst of current-account seasonality has passed.

  Weaknesses

  The current-account deficit remains sufficient to keep pressuring THB during the quarter.

  Comparison

  The report lists THB as one of three bearish currencies in the region.

  Risks

  USD strength, oil- and gold-price volatility, and weakening current-account flows.

Key data

• USD/CNY Q4 2026 forecast6.60Previous forecast was 6.70; below the forward rate of approximately 6.67.
• Expected CNY performance versus spotAppreciation of approximately 2%The report uses year-end USD/CNY of 6.60 as its benchmark.
• USD/CNY FX COMPASS fair value5.96The report's model valuation result.
• Long-term USD/CNY equilibrium valuation6.05The report states this is approximately 12% below spot.
• USD/HKD Q4 2026 forecast7.85Expected to approach the weak-side Convertibility Undertaking, driven by Hong Kong-U.S. rate differentials and carry trades.
• USD/IDR Q4 2026 forecast18,000IDR continues to face USD-strength and policy risks.
• USD/KRW Q4 2026 forecast1,410Lowered from 1,560, reflecting the KRW rebound and improved flows.
• USD/TWD Q4 2026 forecast31.70The report revises its year-end forecast to 31.7.
• USD/THB Q4 2026 forecast33THB is driven by the current account, USD, oil prices, and gold prices.

Impact & implications

The strategic implication is to prioritize CNY appreciation themes while remaining defensive on IDR, PHP, and THB, which are more vulnerable to USD strength, higher oil prices, or tighter external financial conditions. For HKD, investors should monitor carry opportunities near the weak-side Convertibility Undertaking and the constraints of the linked exchange-rate system; for KRW and INR, capital flows and central-bank policy are key to whether range trading can persist.

Risks

• Further USD strength or a more hawkish Fed could pressure low-yielding Asian currencies and those reliant on external financing.
• Persistently high or renewed spikes in oil prices would worsen external balances for India, the Philippines, and Thailand.
• Weak Chinese domestic demand, deflation, and a debt-deflation scenario could translate into capital outflows, reversing the CNY appreciation thesis.
• Rising global long-end yields, declining risk appetite, and geopolitical conflicts would intensify regional currency volatility.
• Trade frictions, tariffs, and policy measures targeting Chinese exports could damage regional trade and capital flows.
• Fiscal or political uncertainty in markets such as Indonesia and Malaysia could trigger additional risk premia.

What to watch

• The strength of China's export-receipt FX conversion, the CNY fixing, and capital flows.
• The Fed rate path, U.S. long-end yields, the dollar index, and global risk appetite.
• International oil prices, gold prices, and their impact on Asian current accounts.
• Hong Kong-U.S. short-end rate differentials and whether USD/HKD approaches 7.85.
• Reserve Bank of India exchange-rate smoothing operations, foreign equity and bond inflows, and the current-account deficit.
• Bank Indonesia's policy stance, fiscal rating risks, and USD liquidity demand.
• Bank of Korea decisions, KOSPI volatility, and foreign equity flows.
• Malaysia's political developments, semiconductor tariff risks, and BNM liquidity management.