Core Viewpoint - The article analyzes the dynamic characteristics of exchange rate linkage under tariff shocks and their impact on bank foreign exchange operations, suggesting countermeasures in response to the complexities introduced by trade protectionism and fluctuating tariffs [1][2]. Group 1: Impact of Tariff Shocks on Exchange Rate Linkage - Recent global tariff shocks are characterized by sudden and frequent changes, with tariff levels ranging from 10% to 145%, affecting a wide range of goods across multiple countries [2]. - The US dollar index has decreased by over 10.6% this year, while major European currencies like the Czech koruna and Swiss franc have appreciated by more than 11% [2]. - The linkage effect of exchange rates has significantly increased during periods of unexpected "reciprocal tariffs," leading to depreciation pressures on currencies in developed and emerging markets [2]. Group 2: Changes in Bank Foreign Exchange Operations - Tariff shocks have altered the structure and scale of customer foreign exchange trading, reducing demand for currency purchases due to increased import costs and decreased competitiveness of exports [10]. - The cross-border capital flow direction is rapidly changing due to tariff impacts, necessitating a reevaluation of foreign exchange trading strategies [10]. - The demand for foreign exchange hedging products has increased as companies seek to manage exchange rate risks amid heightened volatility [10]. Group 3: Challenges in Foreign Exchange Trading - The foreign exchange market faces challenges in depth and liquidity due to the formation of unilateral expectations driven by tariff policies, complicating market-making activities [11]. - Market makers must quickly adjust multi-currency positions to mitigate spillover risks from exchange rate linkages, which can lead to increased liquidity risks [11]. Group 4: Risk Management in Foreign Exchange Markets - The complexity of foreign exchange risk management has intensified, with various risks such as market, credit, liquidity, and operational risks becoming more pronounced [12]. - The interconnectedness of exchange rate linkages can lead to a "volatility-transmission-liquidity crunch" cycle, necessitating robust risk management frameworks [12]. Group 5: Strategies for Bank Foreign Exchange Business Development - Banks should enhance foreign exchange market research and product design to better align with customer needs, particularly in response to tariff policy changes [15]. - There is a need to diversify foreign exchange trading from a USD-centric model to include more regional currencies, thereby reducing exchange rate risks [14]. - Continuous improvement of foreign exchange market infrastructure is essential to provide real-time data and customized solutions for clients [15].

Core Viewpoint - The Australian dollar (AUD) has experienced a slight decline against the US dollar (USD), primarily due to reduced market activity as the weekend approaches, leading to cautious trading behavior among investors [1]. Exchange Rate Movement - The AUD/USD exchange rate fell by 0.03% to 0.6520, retreating from a high of 0.6527 earlier in the week [1]. - The current exchange rate is slightly above the 55-day moving average of 0.6511, which provides temporary support [3]. Monetary Policy Expectations - The market is focused on the upcoming Reserve Bank of Australia (RBA) monetary policy meeting, with expectations of a 25 basis point rate cut to address economic slowdown [3]. - Recent economic data from Australia indicates weakened domestic growth, with consumption and investment growth below expectations, and signs of cooling in the job market [3]. Potential Impacts of Rate Cuts - A rate cut by the RBA could exert downward pressure on the AUD, as lower interest rates reduce the yield on AUD assets, potentially leading to capital outflows [4]. - If the RBA's rate cut exceeds market expectations or signals a more accommodative policy, the AUD may experience further declines; conversely, if the RBA maintains rates or suggests limited future cuts, the AUD could rebound [4]. US Federal Reserve Developments - The appointment of Stephen Moore as a temporary member of the Federal Reserve Board may influence market perceptions of the Fed's policy independence and stability [5]. - If Moore advocates for policies aligned with the Trump administration's economic philosophy, it could decrease the attractiveness of the USD, indirectly supporting the AUD [5]. Factors Influencing AUD/USD Exchange Rate - The AUD/USD exchange rate is influenced by interest rate differentials, economic fundamentals, and global risk sentiment [6]. - A rate cut by the RBA, coupled with a stable or increasing rate from the Fed, could widen the interest rate differential unfavorably for the AUD [6]. - The performance of global commodity markets, particularly prices of iron ore and coal, significantly impacts the AUD, as it is a commodity currency [6].

Core Insights - The linkage between the Korean won and the Chinese yuan is becoming increasingly tight, with fluctuations in the yuan likely to impact the won, especially during periods of global uncertainty caused by trade wars [1][2] - Since 2018, the correlation between the won and yuan has averaged around 0.6, with notable periods of increased correlation during the U.S.-China trade tensions and the aggressive interest rate hikes by the Federal Reserve [1] - The sensitivity of the won to the yuan may increase if former President Trump implements stricter trade protection policies during a potential second term, complicating Korea's monetary policy and foreign exchange risk management [1] Exchange Rate Dynamics - The research indicates an asymmetric relationship in the exchange rate linkage, where the correlation strengthens during periods of won depreciation and weakens during won appreciation [2] - Factors contributing to this imbalance include joint depreciation against the U.S. dollar and competition in export markets between China and South Korea [2] - On the day of the report, the won appreciated over 1% against the U.S. dollar, while the offshore yuan saw a slight increase of 0.15% [2]

Global Macro Overview - The report discusses the recent appreciation of Asian currencies against the backdrop of a weakening US dollar, highlighting significant increases in currencies such as the Korean won, Singapore dollar, Malaysian ringgit, and Thai baht during the "May Day" holiday period [2][3]. Currency Movements in Asia - The reversal of carry trade positions has contributed to the recent currency movements, as the pressure from Trump's "reciprocal tariff" policy has eased, leading to a rebound in Asian currencies and triggering short-covering by market participants [3][4]. - Increased demand for risk hedging has emerged, as major Asian economies have accumulated substantial US dollar reserves, primarily invested in US Treasury securities. The recent rise in credit risk associated with dollar assets has prompted institutions to enhance their hedging operations, accelerating the appreciation of local currencies [4][5]. Implications of Currency Appreciation - The rapid appreciation of Asian currencies poses dual challenges for export-oriented economies. While it mitigates the risk of capital outflows, it may exacerbate trade challenges due to increased export costs. Additionally, the appreciation impacts the net value of dollar-denominated overseas assets, particularly for financial institutions with a "local currency liability, dollar asset" structure, potentially affecting their capital adequacy ratios [5][6]. Hong Kong Dollar Liquidity - The Hong Kong Monetary Authority (HKMA) has intervened to stabilize the currency by purchasing USD 6 billion on May 2, 2025, in response to the strengthening of the Hong Kong dollar. The overall liquidity remains relatively robust, with expectations of manageable liquidity pressures in the short term [8][9]. Future Outlook - The report anticipates a gradual improvement in the liquidity situation for the Hong Kong dollar, driven by a potential slowdown in the inflow of southbound capital and the possibility of the Federal Reserve implementing interest rate cuts in the near term, which could alleviate global dollar liquidity pressures [9].