(MENAFN- ING) Executive summary

Asian currencies have had a mixed run in 2025, with low-yielders far outperforming the high-yielders like the Indian rupee, the Indonesian rupiah, and Philippine peso, where domestic growth and tariff concerns dominated sentiment. Among the top beneficiaries were 1) the Taiwanese dollar, supported by strong export performance despite the tariffs, equity market inflows and increased hedging activity by Taiwanese investors amidst USD weakness, 2) the Thai baht, benefitting from higher gold prices, and bond market inflows even as domestic growth remained subdued, 3) the Singapore dollar, which avoided the worst of the US tariffs to receive the lowest retaliatory rate of 10%.

Looking ahead, while the softer dollar outlook could provide a tailwind for Asia FX, tariff risks and growth concerns persist, and local differentiation will likely shape FX performance in 2026. The key areas we'll be keeping an eye on include:

• Tariff impact on export growth - while recent trade agreements signal a de-escalation in tensions, they offer limited assurance that export growth will remain robust. The reduced tariff gap between China and its regional peers stands out as a clear strategic win for Beijing. However, most of ASEAN, except Singapore, now faces 19-20% tariffs. The full impact of this is yet to be seen on export growth, which has remained rather resilient in 2025. Softer exports and weaker growth are likely to remain headwinds for several regional currencies.
• Valuation dynamics – Inflation differentials have become a more prominent driver of real effective exchange rates in the post-pandemic era, particularly for currencies like the Chinese yuan, where inflation has dropped sharply. Over the year to September 2025, CNY's REER declined by 4.6%, while India and Indonesia saw even steeper declines of over 6.5%. Latest REER estimates (as of September 2025) suggest that the Chinese yuan, Korean won, Indian rupee, Japanese yen and Indonesian rupiah have the most room to appreciate, while the Singapore dollar, Malaysian ringgit, Taiwan dollar and Thai baht appear to have limited upside, with REERs closer to fair value.
• Foreign inflows into Asian economies – Most countries benefited from a rate-cutting cycle and foreign inflows in the bond market as a result. Foreign institutional investor flows recently point towards renewed foreign investor interest in Asia, particularly in Indian and Korean debt, supporting local currency appreciation. In 2026, inflation is unlikely to rise above the central bank targets in any of the Asian economies under our coverage, and we still expect rate cuts in Korea, India, Indonesia, the Philippines, and China, implying that the foreign demand for bonds will likely continue, especially in India and Korea, with strong bond market fundamentals.

Foreign inflows into Asian regional bond markets ($bn)

Source: Ministry of Finance, Japan; Financial supervisory service, Korea; and CDS, India

Based on these factors, CNY and KRW appear well positioned among low-yielders to benefit from an anticipated USD depreciation. The yuan remains undervalued, supported by favourable rate differentials and a strong current account surplus. While growth concerns linger, China's strategic tariff advantage and resilient trade flows provide additional support. Similarly, the Korean won has room to appreciate on healthy external balances, with REER adjustments creating scope for appreciation as external balances remain healthy. However, we believe KRW's performance will remain closely tied to net foreign asset trends. The surge in overseas investments by Korean institutions-particularly into US assets-could act as a counterweight to gains from valuation and rate differentials. This structural outflow dynamic limits the upside for KRW, even in a weaker USD environment.

Within high-yielders, the INR offers the most compelling upside potential if trade dynamics improve. The rupee was a notable underperformer in 2025, failing to capitalise on its widening rate differential versus the USD. Despite macro stability and a robust external balance sheet, selling pressure has persisted amid uncertainty over trade negotiations. Structurally, however, India remains the standout among high-yielders: fundamentals are solid, fiscal risks are contained, and supply chain diversification continues to attract investment. Should trade talks turn favourable, INR could stage a meaningful reversal, making it one of the few high-yielders with upside potential in 2026.

Conversely, IDR and PHP may remain vulnerable. For Indonesia, narrowing real rate spreads and expectations of further BI easing point to continued pressure on the rupiah. Fiscal concerns and sensitivity to rate differentials amplify downside risks. The Philippine peso faces similar challenges, with sluggish growth and tariff headwinds weighing on sentiment. Both currencies are likely to diverge from broader USD trends, reflecting local structural weaknesses.

The bottom line is that, while tariff risks and growth uncertainty persist, valuation and structural fundamentals will drive performance. We favour CNY and KRW among the low-yielders and see selective upside for INR among high-yielders, while maintaining a cautious stance on IDR and PHP.

Currency sections USD/CNY: Under control

	Spot	Year ahead bias	4Q25	1Q26	2Q26	3Q26	4Q26
USD/CNY	7.12	Neutral	7.10	7.10	7.05	7.05	7.00

PBoC stance remains the key for CNY: In 2025, the People's Bank of China demonstrated not only the willingness but also the capability to maintain currency stability amid heavy market pressure. There is little to suggest that a change in position is imminent, as currency stability plays into several main objectives. The first is to provide a favourable backdrop to support China's“going out” objective of expanding outward investment of Chinese firms. The second is the consideration of maintaining domestic confidence, avoiding capital outflow pressure from households and maintaining purchasing power. The third is the broader renminbi internationalisation angle, where China is taking an intermediate step by encouraging increased usage of the RMB for settlement purposes. Barring a major change in priorities, the PBoC will continue to keep USD/CNY relatively stable, and the CNY will remain a low volatility currency versus the USD. We expect that USD/CNY may trade in a range of 6.90-7.30 next year.

Narrowing yield spreads could continue to support CNY: US-China yield spreads have narrowed in 2025, helping support the CNY this year. With the Fed rate cut cycle underway and our house view for another 75bp of cuts ahead, and only 20bp of cuts expected in China next year, this trend could continue into the next year. The key implication of this will be reduced incentive to hold foreign currencies versus the CNY.

Exporters remain a wildcard for CNY strength: Historically, China's current account has a clear correlation with the CNY, with the logic being that as Chinese exporters make sales in foreign currencies, they ultimately convert this money back into CNY in order to pay expenses and make new investments. However, this correlation has weakened in recent years, starting in 2022 and derailing entirely in 2024. We see three main reasons for this – first, the US rate hike cycle led to US-China yield spreads moving considerably in favour of the US for the first time in well over a decade. Second, we saw less demand for exporters to bring money back to China, as economic pessimism has started to cut the demand for new investment in China, and as deflationary pressures reduced expenses. Third, a strong CNY weakening consensus expectation had set in. The big questions for next year will be: are exports going to stay resilient, and will exporters start to bring money back to China? If so, CNY appreciation risks could be bigger than expected.

USD/IDR: Fiscal and monetary concerns locally

	Spot	Year ahead bias	4Q25	1Q26	2Q26	3Q26	4Q26
USD/IDR	16654.00	Neutral	16600.00	16700.00	16700.00	16800.00	16800.00

Rate differentials turning against IDR: The Indonesian rupiah was among the few regional currencies that failed to track DXY's decline in the first half of 2025, diverging sharply from the broader trend. This disconnect largely reflects narrowing yield spreads, which have tilted in favour of the USD. Real rate differentials between Indonesia and the US remain a key driver of the currency pair, but these have compressed as Indonesia's 10-year real rates corrected. Rupiah weakness could persist given its high sensitivity to rate gaps and our expectation of another 50bp Bank Indonesia rate cut this cycle. Meanwhile, robust FII debt inflows that supported IDR earlier have reversed following Finance Ministry changes and a large fiscal stimulus rollout, triggering significant outflows in Sep–Oct 2025 that may continue.

Fiscal easing concerns alive: The government has rolled out additional growth-oriented initiatives, including a third stimulus package and transferring surplus funds to state-owned banks to accelerate priority programmes. While these steps signal a clear shift toward a more accommodative fiscal stance under Finance Minister Purbaya Yudhi Sadewa, their immediate impact on growth appears limited. Meanwhile, sluggish revenue growth keeps fiscal risks in focus. Adding to market unease were consecutive rate cuts and a draft bill on Bank Indonesia proposing granting parliament the authority to remove the central bank governor or board members, raising concerns over the erosion of monetary policy independence.

One of the weakest current account balances in the region: Indonesia's current account shifted to a $3bn deficit in the second quarter of 2025 from near balance in the first quarter, and pressures are likely to intensify. Export growth to the US, which surged over 30% YoY previously, slowed sharply to just 3% in August. At the same time, foreign bond investors remain cautious about Indonesia's fiscal outlook. This mix of weaker trade performance, worsening rate differentials and fiscal concerns could drive IDR lower vs the USD. We think risks to our weak IDR profile are tilted to the downside, given the investor concerns around the independence of governing institutions – which is likely to keep FII inflows at bay.

USD/INR: Fundamentals good if trade pressure abates

	Spot	Year ahead bias	4Q25	1Q26	2Q26	3Q26	4Q26
USD/INR	88.70	Mildly Bearish	88.25	88.00	87.50	87.00	87.00

Securing a trade agreement remains critical: The Indian rupee has been an underperformer in the region, as it stands out as one of the few major Asian economies yet to strike a trade deal or truce with the US – while also facing a very punitive tariff rate of 50% on its exports to the country. Consequently, Indian exports to the US plunged by 30% in September from July after the tariffs were implemented. While both sides maintain that they are making progress in negotiations, an agreement has not come through. Key sticking points include India's continued purchases of Russian oil and its reluctance to open the agriculture sector to the US. We estimate that full tariff pass-through without a trade deal could cost India 0.6–0.7% of GDP, posing a significant downside risk to growth unless an agreement is reached. However, this is not our base case, and we expect some sort of trade deal between the two countries over the next few months.

Rate cuts likely to address growth slowdown: Looking ahead, GDP growth is expected to moderate over the coming quarters but remain the strongest in the region. While recent goods and services tax reductions may offer partial relief to consumption growth, focus on export diversification should make the descent gradual. Moreover, CPI inflation remains well-contained, with the Reserve Bank of India revising its full-year 2026 forecast lower once again from 3.1% to 2.6%. Rate cuts in 2026 are a distinct possibility, especially if India can't improve tariff terms with the US. However, the timing of additional cuts may be complicated by the central bank's focus on improving monetary policy transmission. Despite previous easing measures, transmission to lending rates has lagged, limiting the impact on domestic demand. Until this gap narrows, the RBI may proceed cautiously, balancing the need to support growth against the effectiveness of its policy tools. Overall, the rate differentials should continue to remain in favour of INR.

Short-term pain, long-term gain: Net FII inflows into India's equity market rebounded to $2.5bn in October after a sharp cumulative withdrawal of $6.5bn over August and September. Debt markets continued to attract foreign inflows, supported by sustainably lower CPI inflation, favourable bond dynamics, strong fiscal discipline, and expectations of potential rate cuts. Supply chain diversification should further bolster INR through steady FDI inflows. While we expect India to eventually secure a lower tariff rate – providing upside for INR in 2026 – the prevailing uncertainty around tariffs may weigh on investor sentiment in the near term. A key risk to our 2026 view is fewer-than-expected Fed rate cuts, which could compress rate differentials and exert pressure on INR.

USD/KRW: Persistent strong dollar demand to hold KRW near 1,400

	Spot	Year ahead bias	4Q25	1Q26	2Q26	3Q26	4Q26
USD/KRW	1454.00	Mildly Bearish	1425.00	1400.00	1375.00	1375.00	1400.00

Better macro conditions, less volatility: We expect macro conditions to improve in 2026, driven by 1) GDP returning to 2.0%, 2) a strong chip cycle supporting exports, 3) the Fed cutting rates (75bp) faster than the Bank of Korea (25bp), and 4) domestic political stability supporting growth policies. We believe that this should help reduce KRW volatility compared to this year – but may not necessarily result in a strong appreciation of the won. While external factors related to the US economy may cause some fluctuations, domestic conditions are likely to keep the KRW relatively stable next year. Authorities are also aiming to stabilise the currency as they pursue DM equity status in the coming years, likely limiting any one-way excessive rise above 1,450.

Net foreign assets are now a key factor: Over the past couple of years, we've observed that a weak performance for the Korean won and the conventional correlation between the current account surplus and KRW appreciation – as well as the relationship between equity market performance and currency strength – has weakened. Despite improvements in exports, dollar inflows have not increased as exporters hold onto USD for their FX risk mitigation and overseas cash payments. Also, overseas investments, particularly in US equities and direct investments, have surged, increasing demand for the dollar. Net foreign assets now largely determine FX movements; while increased NFA boosts external financial stability, it also maintains pressure on the KRW. In addition, the recently agreed annual investment of $20bn in the US is expected to increase existing USD demands.

1,400 to be the new normal for the KRW: By the end of 2025, we expect uncertainty surrounding Fed rate decisions. The latest positive development for the KRW was the completion of negotiations with the US, which included securing 15% tariffs on autos and parts, along with a phased approach to the US investment commitment. KRW gained almost 1% on that day. However, it didn't last long. With the main Korea-specific risk factor fading, the global dollar trend prevails when it comes to the KRW's movements. If we are right about a December Fed cut, then USD/KRW should calm down to 1,425. In 2026, additional Fed rate cuts and WGBI inclusion from April are projected to result in a moderate gain in KRW during the first half of the year. Nevertheless, following the completion of easing cycles by two central banks in the first half of 2026, the persistent inversion of US-Korea interest rates may give upward pressure on USD/KRW once again. Should the environment of structurally low growth and interest rates persist, it is likely that the KRW will establish a new equilibrium near the 1,400 level.

USD/PHP: Peso negatives stacking up

	Spot	Year ahead bias	4Q25	1Q26	2Q26	3Q26	4Q26
USD/PHP	58.96	Neutral	58.50	58.50	58.75	58.75	59.00

Downside risks to growth have increased: GDP growth held firm at 5.5% in the first half of 2025, but sharp cuts in government spending during August and September (following recent corruption scandals) signal that growth in the Philippines is likely to disappoint for the year. Government expenditure fell 7.5% year-on-year in September, pulling cumulative growth for the first to third quarter down to a modest 5.2%, compared to 11.6% during the same period in 2024. The economy likely suffered significant losses over the past two years due to corruption-linked schemes, and historical precedent suggests that heightened scrutiny after such scandals often triggers prolonged fiscal tightening. Risks to our 2026 GDP growth forecast of 5.8% are clearly skewed to the downside, compounded by uncertainty over public infrastructure spending, which suggests that the rate-cutting cycle is likely not over yet.

Weaker external balances suggest weaker PHP: The Philippines' balance of payments deteriorated sharply in 2025, posting a $5bn deficit versus a small surplus in 2024. Goods exports remained resilient, up 13% YoY YTD, but services exports contracted 1% YoY in the first half of the year, resulting in a wider current deficit, while FDI inflows fell by 30% YoY. Recent tariff adjustments – lower duties on China and an increase in the Philippines' own tariff rate to 19% from 10% – could erode previous tariff differential advantages. We see downside risks to the Philippines' external balances from potential US legislation – the“Keep Call Centres in America Act of 2025” – proposed by President Trump. The bill would require businesses to notify the Department of Labor before relocating call centres overseas, which could weigh heavily on the country's Business Process Outsourcing (BPO) sector. The industry contributes 8-10% of GDP, with North America accounting for roughly 70% of its market. If enacted, the impact on growth and foreign exchange inflows could be significant.

Improved foreign debt inflows could give temporary support: On a positive note, Finance Secretary Ralph G. Recto confirmed that J.P. Morgan has placed the Philippines on its Index Watch-Positive list, signalling progress toward GBI-EM inclusion. This could unlock significant foreign demand for peso-denominated government bonds, in turn improving liquidity. Foreign holdings are currently estimated at 5.5-6%, and with further Bangko Sentral ng Pilipinas rate cuts and index inclusion prospects, we expect sustained inflows into the local bond market. On balance, we expect external balances to weaken and the BSP to maintain a less defensive stance, which should keep PHP biased to the downside over the medium term. That said, the anticipated Fed easing could offer some near-term support for the currency in this year's fourth quarter.

USD/SGD: Low tariffs and less dovish MAS help SGD

	Spot	Year ahead bias	4Q25	1Q26	2Q26	3Q26	4Q26
USD/SGD	1.30	Neutral	1.30	1.29	1.29	1.29	1.29

Better than expected GDP growth performance: The local economy outperformed in the first half of the year, driven by robust manufacturing and export activity. The latest third-quarter GDP data released today reinforces this momentum, with growth accelerating to 2.9% year-on-year – well above the consensus forecast of 2%. Moreover, the initially feared impact of US pharmaceutical tariffs on Singapore's exports has eased significantly. Singapore's pharmaceutical exports to the US are largely composed of generic drugs, which are less affected by the proposed 100% tariffs targeting branded pharmaceuticals. Additionally, direct investments by Singapore-based pharma companies in the US are expected to further cushion the impact, helping maintain market access and mitigate potential disruptions.

Less dovish MAS: We've observed that the Monetary Authority of Singapore has become less dovish and appears more confident that the impact of tariffs and the extent of the economic downturn will be contained. There's still room to ease, especially with CPI inflation remaining modest within the 0.5-1.5% target range for 2026 amid slowing accommodation and transport inflation – yet any further policy adjustment will likely require clearer signs of economic weakness. Specifically, we think the MAS would need to see growth slow enough to push the output gap back into negative territory – versus its current projection of a zero in 2026 – before considering further easing.

Outperformance likely on strong fundamentals: While SGD NEER has fallen from the top of the band, it could get further support in the fourth quarter as the Fed is expected to cut rates. Singapore is best placed in the region with the lowest tariff rate of 10%, while the implementation of pharma tariffs has been postponed. Both factors should continue to benefit export growth. With the MAS striking a less dovish tone and strong FDI inflows supporting the external balance, the Singapore dollar could stay firm – unless we see a meaningful rebound in the US Dollar Index (DXY) or a quick deterioration in external balances.

USD/TWD: Exporter influence

	Spot	Year ahead bias	4Q25	1Q26	2Q26	3Q26	4Q26
USD/TWD	31.00	Mildly Bearish	30.60	30.40	30.20	30.10	30.00

Export heavy growth could keep downside for USD/TWD limited: The Taiwan dollar provided one of the bigger stories for Asia this year in May, when we saw the biggest surge of the TWD since 1988. This sparked heavy backlash, as both exporters and under-hedged life insurers highlighted the risks from the sudden appreciation. Since then, TWD volatility has narrowed sharply, and the TWD has unwound almost half of the appreciation from earlier in the year. Domestic factors in general point to odds for TWD strengthening, but pressure from exporters and insurers could limit the extent to which TWD appreciation is tolerated.

Lasting power of the AI theme could be a big factor to watch: The TAIEX continued to climb to new highs in 2025, and continued to attract net capital inflows for the year. This has been one of the supporting factors for TWD strength, including its surge in May. Further breakthroughs could keep the good times going in Taiwan, while stagnation or a cooling of the AI mania could result in a painful reversal. With Taiwan's positioning at the cutting edge of semiconductors and its equity market flows largely driven by the semiconductor outlook, the TWD stands to be impacted on how the AI narrative plays out.

Yield spreads look to favour TWD strengthening next year: The CBC has remained unmoving for 2025. While inflation has fallen below the 2% target and no longer holds back a potential rate cut, at the same time, growth has far and away blown out all expectations. Even though this growth is rather imbalanced, the case to push for easing looks difficult. We have pencilled in a single 12.5bp cut for 2026, and if the AI-driven export demand continues to hold up, the odds of this cut being further pushed back will increase. Combined with the ING Fed call, US-Taiwan yield spreads should narrow next year and support TWD strength.

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