Intervention and vulnerability to USD – BNY

BNYs Bob Savage focuses on rising FX intervention and fragile sentiment in Asia-Pacific (APAC) as higher Oil and geopolitical risks pressure regional currencies. The Reserve Bank of India (RBI) has tightened FX rules to curb Indian Rupee (INR) depreciation, while Indonesian Rupiah (IDR), Philippine Peso (PHP) and South Korean Won (KRW) are flagged as most vulnerable. Persistent foreign outflows and underheld positions in several currencies suggest continued volatility and lagging performance in risk-on phases.

Intervention rises as regional FX weakens

“Sentiment remains fragile amid rising FX and equity volatility, driven primarily by geopolitical risks and elevated crude oil prices. Persistent foreign capital outflows are adding pressure to regional currencies and amplifying equity market swings.”

“Notably, March saw record foreign net selling in South Korea, Taiwan, and India.”

“The Reserve Bank of India has responded with aggressive macroprudential measures to curb INR depreciation, including capping banks FX Net Open Positions and restricting onshore dealers from offering INR NDF contracts.”

“These steps underscore growing urgency to safeguard financial stability before depreciation pressures become disorderly. Regionally, IDR, PHP, and KRW remain the most vulnerable, with currencies trading near all-time lows against the USD.”

“Rising hedging demand is evident in positioning data: iFlow scored holdings show IDR and INR have shifted from significantly overheld into underheld territory, while TWD remains deeply underheld. We advise caution in FX markets, as currencies may lag in any risk-on environment, with adverse terms-of-trade dynamics continuing to act as a drag.”