Asia FX Talking: Support measures stacking up
The desk sees potential stabilization for Asian currencies as local authorities ramp up support measures amid ongoing market pressures, such as high energy prices and rising US rates. Per the full note, the Chinese yuan (CNY) showed signs of resilience with appreciation fueled by a strong trade surplus and tighter controls on capital outflows. This contrasts with the Korean won (KRW), which has faced significant volatility but is likely experiencing supportive measures from the Bank of Korea. Aimed at containing depreciation risks, these measures may lead to a more stabilized trading environment by summer, as local authorities respond to investor sentiment.
What the desk is arguing
The outlook for Asian FX appears increasingly optimistic as local governments implement measures to support their currencies, mitigating recent downturns. This perspective is largely informed by recent dynamics in the Chinese yuan, which has outperformed against the dollar due to a significant trade surplus and less resistance to appreciation from daily fixings. The desk frames this as a crucial factor contributing to a potential easing of volatility in the region's currency markets.
Supporting this view, the CNY recently hit a low of 6.76 against the USD, reflecting a bullish macro backdrop reinforced by new measures limiting capital outflows. The continued perception among market participants of potential further appreciation indicates that there is an undercurrent of strength in the yuan, contrasting with the weakness seen in other currencies such as the KRW, which has struggled due to geopolitical risks.
Where it sits in our coverage
Our consensus target for USD/CNY is 6.85, with a range of 6.70-7.05 as projected by firms like Goldman Sachs (6.80, Dec-26) and Citibank (6.75, Dec-26). This view generally aligns with our outlook but places us at the lower end of the expected range as the situation evolves.
How other firms see it
Firms such as JPMorgan and Barclays share similar assessments, aligning on a more bullish view regarding CNY stability driving potential appreciation. In contrast, firms like BofA provide a more cautious stance, highlighting risks that could affect currency stability, particularly related to external capital flows.
Relevant pairs to monitor include USD/KRW and the broader implications of U.S. Treasury yields on Asian currencies. Any upward trends in U.S. yields could exert additional pressure on regional F/X pairs, possibly dampening the supportive effects from local measures.
Key takeaways
- 01Asian currencies are under pressure but receiving policy support from local authorities.
- 02The Chinese yuan is showing resilience with recent appreciation linked to a strong trade surplus.
- 03The Korean won remains volatile but may stabilize with anticipated rate hikes from the Bank of Korea.
- 04Potential for reduced volatility in currency markets could emerge by summer as support measures take effect.
Market implications
Watch the USD/CNY pair for signs of further appreciation, particularly if it consolidates below 6.76. Key resistance levels for USD/KRW at 1,550 could trigger intervention, impacting sentiment and positioning in the broader Asian currency space.
Risks to this view
Failure to stabilize CNY due to unexpected capital outflow or aggressive U.S. monetary tightening could undermine the recent positive momentum. If geopolitical tensions escalate, particularly around Korea, this could further exacerbate the weakness in the KRW and regional currencies more broadly.
Articles Asia FX Talking: Support measures stacking up 08:16 FX Talking China India Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Many Asian currencies have had a difficult few months amid higher energy prices, rising US rates, tech volatility and some questionable policy choices. Local authorities are unleashing a raft of measures to attract foreign capital and support their currencies. As these steps gain traction, a period of calmer trading may emerge by summer Deepali Bhargava , Min Joo Kang and Lynn Song Policy support gathers pace as pressures on Asian currencies persist, with the yuan showing relative resilience USD/CNY: Appreciation trajectory remained intact Spot One month bias 1M 3M 6M 12M USD/CNY 6.76 Neutral 6.76 6.73 6.70 6.65 The Chinese yuan was an outperformer last month, with the USD/CNY drifting lower, touching a low of 6.76.
A strong May trade surplus and less resistance to appreciation from daily fixings offset a wider US-China yield spread, supporting the CNY over the past month. We hold our 6.70-7.05 fluctuation band forecast, with risks to the downside. New tightening on capital outflows adds to the CNY-bullish macro backdrop.
Market participants still seem to largely favour further CNY appreciation. USD/KRW: KRW to remain weak and volatile in near term Spot One month bias 1M 3M 6M 12M USD/KRW 1517.00 Neutral 1515.00 1475.00 1475.00 1450.00 USD/KRW has been the worst-performing Asian currency, briefly breaking above 1,550 before intervention by the authorities brought it back toward the 1,525 level. A chip-led current-account surplus is expected to widen towards historic highs.
But geopolitical risks and large outbound portfolio flows should keep USD/KRW near 1,515 in the near term, with 1,550 as a key intervention risk level. The Bank of Korea is expected to hike rates in July and signal additional tightening. We expect 50bp of hikes this year and another 25bp in 1H27.
Narrowing the yield gap with the Federal Reserve should support a mild appreciation in the Korean won in 2H26. USD/INR: Likely to trade with upward bias Spot One month bias 1M 3M 6M 12M USD/INR 95.03 Mildly Bullish 95.50 94.50 94.00 93.00 We are factoring in mild appreciation in our Indian rupee forecast for the second half of the year. A sizable balance-of-payments deficit - driven by a higher import bill and continued foreign outflows - remains a headwind.
But recent measures by the Reserve Bank of India to encourage capital inflows should gradually become supportive. The RBI announced that it will bear the full hedging cost for three- to five-year foreign currency non-resident (FCNR) deposits. This measure could enable banks to raise an estimated $20–40bn in deposits, helping to bridge the balance-of-payments gap.
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