EM Asia FX/Rates Views: Positioning for Higher Energy, Elevated Core Yields and Further AI Investment

This report presents EM Asia FX and rates views. Asian macro markets this year have been navigating volatile energy prices, a surge in AI-related exports, and rising core yields, with tech-exporting economies weathering the energy shock far better than others: South Korea's and Taiwan's current account forecasts were revised up to 19% and 25% of GDP respectively, underpinned by strong tech exports. Energy prices have rallied sharply due to the ongoing Middle East conflict, with Brent crude firmly above $100/bbl, and natural gas and refined product prices are likely to remain elevated heading into the European winter. The Fed raised rates by 25bps to 3.75%-4.00% with hawkish guidance, while 30-year JGB yields rose to a record 4.0%. We expect the broad USD to remain range-bound, with energy prices, AI-related investment and carry dynamics providing support. Currencies of heavy net energy importers with limited AI exposure, such as IDR and PHP, should underperform;