Bank of America: Rocky Or Resilient?

Bank of America note that “Asian markets have faced a toxic combination of a stronger USD, risk-off and higher U.S. rates since November 2021. At the surface, local currencies have held up relatively well with the Asia FX index essentially flat over this period. We take an agnostic sanity check of Asia FX moves, specifically updating our principal component analysis (PCA) approach to identify global drivers of Asia FX. We find Asia FX deprecation has been largely consistent with what our estimates would imply with a couple of outliers related to idiosyncratic factors - KRW depreciation (tech outflows) and CNH appreciation (pandemic-related BoP strength). The policy easing cycle in China may provide some marginal offset to the U.S. tightening cycle for Asia FX.”