Asian FX cautious as Ukraine tensions weigh

February 18, 2022: Most Asian currencies were subdued in dull trade on Friday as caution prevailed over the rising tensions between Ukraine and Russia, driving investors to safe-haven assets, while the Indonesian rupiah extended losses into a second day.

The rupiah eased about 0.2% as Southeast Asia's largest economy begins the process of gradually rolling back its pandemic-era stimulus on signs of economic recovery, while other regional currencies were largely unchanged.

Globally, investors stayed on the sidelines with eyes on a meeting between U.S. Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov later next week in hopes of a diplomatic solution for the East-West standoff over Ukraine. Rising cross-border tensions, along with global inflationary concerns, have been weighing on emerging Asian markets since the previous week, with the U.S. Federal Reserve's hawkish stance to combat higher price pressures adding further pressure.

"Without any clear resolution in the near term, the uncertainty for a potential invasion (of Ukraine) is sufficient to keep market participants shunning from risk assets, while flocking to safe-haven," analysts from IG Group said in a research note.

Additionally, analysts from Barclays said while the backdrop for emerging currencies is slowly turning supportive, lingering risks will likely complicate any sustained advance and volatility will persist.

 In Asia, the Singapore dollar, Taiwan dollar, and the Malaysian ringgit traded flat, while the Philippines peso appreciated slightly.

The Thai baht, the best performing currency in the region so far this year, was down about 0.1% on Friday but on track for its best week since Jan. 28 - third consecutive positive week - if the gains hold. Regional equities were under pressure too on Friday, with the Philippine benchmark losing as much as 0.9% to see its worst day in a week, while Thailand shares and Taiwanese stocks fell up to 0.5% and 0.9%, respectively.

South Korea's KOSPI lost about 0.3% and was set for its second weekly drop over Ukraine risks and surging daily COVID-19 cases, even as authorities said they would slightly ease restrictions. Singaporean shares edged lower, ahead of its fiscal 2022 budget later in the day.

HIGHLIGHTS

Thailand's tourism-reliant economy likely returned to growth in Q4 - Reuters poll.

Indonesia posts an $844mn deficit in Q4 BoP despite the current account surplus.

Indonesia's benchmark 10-year yields down to 6.505%.

Reuters