Asia FX Outlook 2027: Rotation Underway But Tech Currencies Should Lead

(MENAFN- ING) Executive summary

Asian currencies have had a mixed run in 2026. AI export-linked currencies (the Korean won, Chinese yuan, Singapore dollar, and Malaysian ringgit) generally outperformed, while less direct beneficiaries such as the Indian rupee, Indonesian rupiah, and Philippine peso each weakened by more than 5%. Deteriorating political dynamics and supply-side shocks from higher energy prices further weighed on growth prospects and added pressure on these currencies. One notable exception among the tech-linked economies was the Taiwanese dollar, which depreciated by around 5% despite strong current account balances, as a tech-sector sell-off in recent months triggered equity outflows. In contrast, the Singapore dollar delivered another year of strong gains, supported by AI-related exports and stronger-than-expected economic growth.

Post-midterms, there has been a rotation from North Asian to South Asian currencies, driven by the tech sell-off and lower oil prices, which have helped improve valuations in parts of South Asia. Looking ahead, a softer dollar should provide a tailwind for Asian FX in 2027. However, we see further downside risks for the PHP and IDR given persistent external vulnerabilities and weaker capital inflows, while tech-linked currencies such as the KRW and CNY are likely to outperform as current account surpluses likely play a larger role in driving performance. CNY appreciation should continue, but with greater two-way volatility.

Still -strong current account support for tech currencies: We remain bullish on the KRW and TWD. In our view, the AI cycle may be plateauing, but activity remains at a high level. Strong AI-related exports should continue to support current account balances, while exporter FX conversion should help offset capital outflows. In addition, new measures to encourage the repatriation of overseas assets could provide further support for both currencies. Rate differentials and resident outflows are becoming less supportive for EM Asia: Most Asian central banks are further ahead in their tightening cycles than the Fed. We expect most to complete their hiking cycles by the first quarter of 2027 and begin preparing for policy easing thereafter. As a result, interest rate support for Asian currencies is likely to diminish and negatively impact rate-sensitive currencies like IDR the most. At the same time, households and corporates continue to favour foreign currency assets, reflecting still-elevated global yields and a desire to diversify savings away from domestic currencies. This preference for foreign assets could offset some of the support from strong current account balances and limit the upside for Asian FX, even as the broader dollar outlook becomes more favourable. Oil and food price risks should largely be behind us by the second half of 2027. This should benefit oil-importing currencies such as the PHP, IDR and INR. However, tighter global financial conditions mean capital inflows are unlikely to be distributed evenly. Political uncertainty and the MSCI downgrade will continue to weigh on investor sentiment towards IDR, while weaker FDI inflows remain a challenge for PHP. We remain more constructive on the INR, where growth should stay relatively more resilient, supported by supply chain diversification, continued FDI inflows, and lower vulnerability to swings in the AI cycle.

Currency sections USD/CNY: Steady appreciation trend to face two-way risks ahead

	Spot	Year ahead bias	4Q26	1Q27	2Q27	3Q27	4Q27
USD/CNY	6.67	Mildly Bearish	6.62	6.60	6.55	6.60	6.50

PBoC has overseen a smooth period of continuous moderate CNY appreciation: USD/CNY has been on a steady downward trend over the past year and has been one of the surprising outperformers amid a strong dollar backdrop. We currently pencil in one 10bp rate cut from the People's Bank of China (PBoC) next year, along with further targeted easing measures. Eventually, the interest rate spread should attract some CNY bears into action. The PBoC's stance could shift after being supportive of further strengthening over the past year. We see some signs of pushback against appreciation already; in an October policy statement, the PBoC warned against one-sided and pro-cyclical behaviour in the FX market, and in November, it hiked the foreign-exchange deposit reserve requirement from 4% to 6%. If the PBoC pushes back more strongly, it could well mark the end of the CNY appreciation cycle.

CNY headwinds should remain on the radar: US-China yield spreads widened to the highest levels in decades in 2026, and short-term spreads could widen further as the Fed has started rate hikes, while the PBoC is still easing policy. Growth is expected to be more stable in 2027 after a year of moderation in 2026. This year was also an unusually weak year for outbound investment, as we saw the introduction of tighter rules on outward direct investment, leading to a surprise contraction of outward direct investment (ODI) after years of solid growth. Similarly, a crackdown on overseas investment income may have discouraged further outflows. If outbound investment normalises in 2027, this could be a catalyst for a USD/CNY rebound.

Base case is for continued appreciation, but the path may not be so smooth next year: Considering the foreign currency left overseas in recent years, and with incoming foreign currency receivables with China's trade surplus set to hit a new record high in 2026, the stage is set for further CNY appreciation. At this point, this view is widely accepted, which in the near-term helps reinforce the trend, but also raises the question of whether most market participants are already fully positioned in this direction. While the CNY will remain a relatively low-volatility currency, we don't expect the straight-line appreciation of the past year to continue for another year. We set an initial fluctuation band forecast of 6.40-6.80 for 2027, with a 2027 year-end forecast of 6.50. Two-way fluctuation looks likely to return, and a strong CNY appreciation bias in markets raises the risks for a stronger reversal.

USD/IDR: Renewed weakening pressures likely for the IDR

	Spot	Year ahead bias	4Q26	1Q27	2Q27	3Q27	4Q27
USD/IDR	18232.00	Neutral	18000.00	18100.00	18200.00	18200.00	18200.00

Growth continued to surprise on the upside through the first three quarters of 2026, with GDP expanding well above expectations. Both domestic and external demand contributed to the strong performance. Exports remained supported by robust demand for manufactured goods, while domestically, investment activity and household consumption held up despite rising political uncertainty and persistent capital outflows. Government spending accelerated and capital expenditure remained strong, reflecting confidence in Indonesia's medium-term growth prospects. Fiscal deficit targets were raised but remain below the legislative cap of 3%. Importantly, stronger growth has not come at the expense of price stability, with inflation remaining well contained, supported in part by government subsidies. However, this macroeconomic resilience has yet to translate into higher investor confidence and capital inflows, which is keeping IDR under pressure. As a result, we expect Bank Indonesia (BI) to hike by 25bp in December, with the last hike this cycle being delivered in 1Q27.

Political uncertainty and MSCI downgrade: Indonesian assets have come under significant pressure this year, with the rupiah among Asia's weakest currencies and the Jakarta Composite Index (JCI) down more than 42% year-to-date, making it one of the region's worst-performing equity markets. Investor sentiment has been weighed down by rising policy uncertainty under the Prabowo administration, concerns over energy subsidies, and questions around the implementation of structural reforms. These concerns have intensified following MSCI's review of Indonesia's market classification, with a potential downgrade from Emerging Market to Standalone Market status. The decision is expected by mid-2027, raising the risk of sustained portfolio outflows. MSCI's concerns centre on market accessibility issues, including opaque shareholding structures, suspected coordinated trading activity, and insufficient evidence of regulatory enforcement. If the downgrade is announced, it could trigger billions of US dollars in foreign outflows from Indonesia markets.

Indonesia's external position has deteriorated, with the current account deficit widening to $3.5bn in 2Q26 from near balance at the end of 2025, and pressures are likely to intensify. Slowing export growth has reduced support from the trade balance, while FDI inflows weakened further in 1H26. As a result, Indonesia recorded a balance of payments deficit of $10bn in 1H26, the largest on record, highlighting growing strains in the country's external accounts. At the same time, foreign investors remain cautious amid concerns over fiscal slippage, as higher oil prices and El Niño-related subsidy spending weigh on the fiscal outlook. We therefore continue to see downside risks to the rupiah. Narrowing rate differentials as BI nears the end of its rate hikes and widening external deficit inflows leave the currency increasingly vulnerable. With FX reserves no longer rising meaningfully, Bank Indonesia's ability to smooth sustained depreciation pressures may become more constrained over time.

USD/INR: Downside risks for INR likely to be diminished

	Spot	Year ahead bias	4Q26	1Q27	2Q27	3Q27	4Q27
USD/INR	94.04	Neutral	94.00	94.00	93.50	93.00	93.00

The RBI delivered its first rate hike in four years, raised its growth and inflation forecasts, and signalled a path of gradual policy normalisation. While the tone was hawkish, the message was one of calibrated tightening rather than an aggressive hiking cycle. Rate cuts are firmly off the table, but the Reserve Bank of India (RBI) also appears reluctant to tighten liquidity sharply or front-load rate hikes. Barring a material inflation surprise from persistently high oil prices, a stronger-than-expected El Niño impact on food prices, or a sharper INR depreciation, we expect the RBI to continue tightening gradually. Our base case is for a further 50bp of hikes over the next six months, taking the repo rate to 6.0%. With inflation projected at 5.2% in FY27, this would lift the real repo rate to around 50bp, returning policy to positive real rate territory but still below the RBI's longer-term comfort level of around 1%, suggesting scope for further normalisation should inflation risks materialise.

India remains in a relative sweet spot: Growth has remained resilient through 2026, supported by robust domestic demand and a stronger external backdrop. Export growth has held up well as firms continue to diversify export destinations, while easing tariff-related tensions with the US and the new trade agreement with the EU have supported a reorientation towards European markets, where export momentum has strengthened. As a result, manufacturing activity has remained robust whereas investment growth has been underpinned by strong government spending. While India benefited less from the AI-driven export boom than North Asian economies, it is also less exposed to a potential correction as the cycle matures. Structural reforms, ongoing infrastructure investment, and resilient services exports should leave India well positioned to outperform many regional peers as the AI cycle normalises.

Downside risks have diminished: India's external position has weakened, with the current account deficit projected to widen to 2.5% of GDP in 2026 from 0.7% in 2025. While RBI measures to attract foreign inflows helped support the balance of payments, frequent policy adjustments have raised some concerns about policy consistency. The more significant headwinds, however, have come from higher oil prices and India's relatively limited participation in the AI-driven export boom. Looking ahead, lower oil-related risk premia should improve India's terms of trade and reduce pressure on the INR, while the decline in oil prices has encouraged a recovery in foreign portfolio inflows. Nevertheless, reserve adequacy has declined recently following foreign outflows from equity markets and recent FX intervention, and the RBI is likely to use periods of INR strength to rebuild reserves. So, while downside risks to INR have diminished, the scope for sustained appreciation remains limited, leaving the currency broadly stable rather than materially stronger.

USD/KRW: Offshore money comes home

	Spot	Year ahead bias	4Q26	1Q27	2Q27	3Q27	4Q27
USD/KRW	1333.00	Mildly Bearish	1325.00	1325.00	1300.00	1300.00	1275.00

Domestic demand picks up, BOK stays hawkish: Korea seemingly has been one of the biggest beneficiaries of the AI boom this year. Having expected the Korean economy to grow by 1.8% at the start of the year, the Bank of Korea (BOK) now expects GDP growth in excess of 3.3% this year and above 2.9% in 2027. Encouragingly, strong exports and investment are broadening into consumption at a time of cyclically low unemployment (2.6%). In response, the Bank has hiked the policy rate twice to 3.00% and is considering further tightening. Money markets price a move close to 3.50%, which was the peak of the cycle back in 2023, when inflation was running above 6%. That looks like the direction of travel for the policy rate, though the central bank remains worried about surging house prices and high levels of household debt.

A U-turn in sentiment: Having traded as high as 1,550 in June, the subsequent drop in USD/KRW to 1,350 has been eye-watering. Driving that has been a turnaround in portfolio flows. In May and June, foreigners sold around $30bn of Korean assets each month. Those outflows have since slowed. Clearly, the performance of Samsung and SK Hynix, which together comprise around 50% of the Kospi index, is going to have a big say here. But our house view of the AI story plateauing at a high level suggests it is too early to call the Kospi a big negative for the won. In any case, the correlation between the won and the Kospi regularly flips from positive to negative and is hard to rely on. Instead, we think government measures to encourage greater repatriation of FX export proceeds have been a bigger driver of won gains recently.

Stronger growth can see more repatriation: We expect Korea's 15-20% current account surplus to play a more meaningful role in driving won gains in 2027. Korea's current account surplus is close to $50bn per month and the challenge for Korean authorities is to get exporters to bring that money home. Overseas reinvested earnings did see a big drop in response to government measures in 2023. Since then, the story has been mixed. But in 2027, we think a combination of higher domestic growth rates, higher interest rates and new incentives (tax breaks, etc.) can see more export earnings chase opportunities in Korea. Looking at Korea's real, trade-weighted exchange rate, we see it around 5% below its 10-year average. A return to average levels would put USD/KRW somewhere near 1,275, which is our call for the end of 2027.

USD/PHP: FX fundamentals remain challenging for PHP

	Spot	Year ahead bias	4Q26	1Q27	2Q27	3Q27	4Q27
USD/PHP	63.69	Neutral	62.70	63.50	64.00	64.00	64.00

Inflation in the Philippines remains the highest in the region, averaging 5.5% year-on-year in January to October 2026, with the latest reading accelerating to 7.8% YoY, driven largely by higher fuel prices and their pass-through into core inflation. The BSP's 50bp jumbo hike in October was likely delivered in anticipation of this inflation surge. Looking ahead, easing oil prices, a weaker USD and uncertainty surrounding developments in Iran following the US midterm elections suggest that Bangko Sentral ng Pilipinas (BSP) may prefer to assess the cumulative impact of past tightening rather than move aggressively again. If oil prices continue to decline and 3Q GDP growth disappoints, the case for another jumbo hike appears limited. Nevertheless, we maintain our base case for a final 25bp rate hike in December, taking the policy rate to 5.75%. While the inflation outlook is improving, core inflation remains sticky, and the BSP is likely to retain a cautious tightening bias to keep inflation expectations anchored and stay ahead of potential upside risks.

Growth is likely to strengthen and recover to 5.0% in 2027, following a weaker-than-expected first half of 2026 that was weighed down by fiscal underperformance. As government spending normalises, favourable base effects kick in, and lower energy prices support household purchasing power, both business and consumer activity should improve. Labour market conditions have softened, with unemployment rising alongside weaker demand in government capex. Wage growth in construction and services has lagged inflation, constraining household incomes. The bright spot remains the manufacturing sector, where wages have held up better, rising nearly 8.5% YoY in the first half of the year. Labour demand in manufacturing also remains robust, with job postings up almost 30% YoY, suggesting continued strength in export-oriented and industrial sectors. Overall, the growth outlook is poised to improve, although risks remain tilted to the downside due to ongoing political uncertainty and potential spillovers from Middle East tensions.

FX fundamentals remain challenging, pointing to continued currency weakness: Narrow rate differentials and a widening current account deficit continue to weigh on the peso, while the BSP has drawn on its foreign exchange reserves to smooth currency volatility. As a result, reserve adequacy has deteriorated, with import cover declining to around 6.2 months, the lowest level since 2018. While the weaker peso has provided a boost to electronics exports and improved export competitiveness, this has not been sufficient to prevent a significant widening in the current account deficit. Strong import demand, particularly for capital and intermediate goods, has more than offset export gains. Services exports and remittance inflows remain resilient, but foreign direct investment inflows have weakened considerably, reducing a key source of stable external financing. Taken together, the balance of payments outlook remains soft, suggesting limited scope for sustained currency appreciation despite an improving growth backdrop.

USD/SGD: Another year of relative strength for SGD

	Spot	Year ahead bias	4Q26	1Q27	2Q27	3Q27	4Q27
USD/SGD	1.29	Neutral	1.27	1.27	1.27	1.26	1.26

Still-vigilant MAS: While the inflation outlook has improved following the recent correction in oil prices, risks have not disappeared. Domestic inflation could prove stickier if spillovers from the AI-driven investment cycle become more broad-based, boosting demand and pushing labour costs higher than expected. Weather-related disruptions, including El Niño-related risks, could also add to food price pressures. As such, we continue to see the balance of inflation risks as modestly skewed to the upside in the near term, even though inflation is likely to begin moderating from mid-2027 after these risks subside. The Monetary Authority of Singapore (MAS) is likely to remain vigilant, closely monitoring developments in energy prices, food inflation and domestic demand conditions. Any renewed rise in domestic inflation pressures could prompt a further tightening move in the January policy review.

Strong growth performance: Singapore's GDP growth averaged 6% YoY in the first three quarters, far exceeding expectations and highlighting the economy's resilience. The economy has benefited disproportionately from the global AI investment cycle, which has boosted demand for semiconductors, electronics and other high-value manufacturing exports. At the same time, domestic demand has remained firm, supported by a tight labour market, healthy wage growth and solid credit expansion. Looking ahead, we expect growth to moderate as the pace of AI-related investment and export growth normalises from exceptionally strong levels. Nevertheless, GDP growth is still projected to remain at a robust 4.0% YoY in 2027, above its long-run trend. Continued strength in domestic demand, ongoing investments in advanced manufacturing capacity and Singapore's central role in AI-related supply chains should help sustain growth even as external tailwinds become less pronounced.

Strong external balance sheet should support SGD: The SGD nominal effective exchange rate (NEER) is trading near the top of its policy band, around 1.6% above the midpoint of the ±2% band, limiting the scope for further policy-driven appreciation. Even so, we expect the Singapore dollar to outperform most regional currencies. Resilient growth, supported by AI-related exports, strong manufacturing activity and firm domestic demand, should continue to attract capital inflows. Singapore has also emerged as one of the region's largest beneficiaries of supply chain diversification and geopolitical fragmentation, capturing roughly a quarter of Asia's net FDI inflows since the pandemic as it positions itself as a neutral hub that attracts investment from both US and Chinese firms. In addition, USD/SGD remains closely correlated with DXY and should benefit from further US dollar weakness. Together, resilient growth, sustained capital inflows, supportive monetary policy expectations and a softer US dollar should keep the Singapore dollar well supported relative to its regional peers.

USD/TWD: AI trajectory could determine TWD direction

	Spot	Year ahead bias	4Q26	1Q27	2Q27	3Q27	4Q27
USD/TWD	32.90	Mildly Bearish	32.50	32.20	31.90	31.70	31.50

Hedging changes, outbound investment, and the central bank stance have been TWD headwinds: At the start of 2026, Taiwanese life insurers were able to apply an FX-amortisation method to directly held foreign-currency debt securities classified at amortised cost, reducing the incentive to hedge and with TWD forward buying falling as a result. Outbound investment was also a major consideration, as we've seen the US-Taiwan yield spread widen significantly through the year. Taiwanese corporates have also raised overseas investment amid aggressive capacity expansion. The Central Bank of the Republic of China (CBC) has decided to hold rates steady so far after a round of global central bank tightening. Although we expect a rate hike in December, the CBC has been less hawkish than most global peers, and this should continue as we expect the December move may be one-and-done. The CBC has also played a role in limiting TWD movement via interventions.

Taiwan has been one of the world's biggest beneficiaries of the AI boom, but the TWD hasn't shown it: This year, Taiwan has managed double-digit GDP growth in the first three quarters, and we have seen Taiwan's trade surplus over the first 10 months of the year rise 57.7% YoY to US$188.5bn, breaking a new record high. At the same time, AI optimism also led the TAIEX to reach a record high in October and attracted significant foreign capital inflows until the recent selloff. Despite this seemingly positive combination, USD/TWD has traded within a range of 31.2-33.0 through 2026, with the TWD weakening overall against the USD since the start of the year.

Heading into 2027, AI industry developments will likely remain the main driver for the TWD, which could stage a recovery in 2027: On the current account side, we expect that full order books for Taiwan's leading tech companies, driven by AI capex, will result in continued strong trade growth in the year ahead, and exporter repatriation should eventually play a larger role in the TWD trajectory. While the factors leading to TWD depreciation this year remain a consideration, these headwinds are likely already well reflected in the current level for the TWD. As such, we see risks being balanced toward a moderate recovery next year, where we have the TWD strengthening to 31.5 by the end of 2027.

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