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Spill Over From Weaker CNH Levels Evident For Asia FX, Particularly KRW

CNH

Fresh record highs in USD/CNH can be expected to impart a spill over to other USD/Asia pairs, all else equal. The chart below plots the correlation and betas between CNH and other major Asian currencies for the past month. Note we utilize daily percentage changes to calculate the correlations and betas.

  • Correlations are all positive, albeit to varying degrees. For the past month, USD/IDR, USD/SGD, USD/TWD, USD/KRW & USD/PHP all have correlations above 60%. Current correlations are lower for INR, THB & MYR.
  • The betas present a similar story, sitting closely to 0.50 for those pairs with high correlations. USD/KRW is somewhat of a standout though, with a current beta of 0.875.
  • Trade linkages between South Korea and China are obviously very strong, although the won may also be serving as somewhat of a proxy for China currency/economic weakness. This factor could be influenced by efforts to curb depreciation pressures on the part of the China authorities.
  • Correlations for the past month are slightly above 2022 averages as well for nearly all USD/Asia pairs (except for USD/THB & USD/MYR).

Fig 1: USD/CNH & USD/Asia Correlations/Betas (Past Month).

Source: MNI - Market News/Bloomberg

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