• EM Asian currencies likely to decline against US Dollar in run-up to Federal Open Market Committee meeting in December

    来源: FxWire Pro - Commentary / 10 十一月 2016 01:13:39   America/New_York

    The EM Asian currencies are likely to depreciate against the US dollar before the December FOMC meeting due to concerns over either increasing risk-aversion or a looming Fed rate hike in December, noted Scotiabank in a research note. The depreciation is expected to be led by the South Korean won and the Malaysian ringgit.

    Regional regulators have committed to keep a close watch on the markets and curtailing excess volumes if required. The global FX markets are set to be impacted by Donald Trump’s victory and his protectionist and populist stances. The odds of the U.S. Fed hiking in December finally recovered t o 82 percent on Wednesday after falling to the intraday low of about 50 percent, said Scotiabank.

    The South Korean won is expected to lead the broad declines in regional currencies because of the nation’s bilateral trade and military ties with the U.S. In the region, Singapore has the highest external trade-to-GDP ratio. With the huge weightings of non-USD major currencies in S$NEER and CFETS basket, the Singapore Dollar and the Chinese yuan would face additional downward pressure as the upcoming constitutional referendum in Italy imposes risks on the downside to the EUR, according to Scotiabank. Moreover, there is possibility of a trade conflict between the U.S. and China. Meanwhile, the Taiwanese dollar is expected to outperform the Korean won.

    The Indonesian rupiah and the Malaysian ringgit are also vulnerable to the external uncertainties as both the nations record a high foreign ownership of local government bonds. Moreover, the current account balance of Indonesia continues to be in negative territory. The Philippine peso might be weakened by domestic policies and uncertainties of its bilateral relation with the U.S. including military ties.

    In the meantime, while India continues to record current account deficit, foreign positions in India’s financial assets are not important. As long as the nation’s consumer price inflation stays under control, the Indian rupee is likely to outperform regional peers. In the midst of global uncertainties, regional central banks are expected to continue to keep their pro-growth stance and smooth extreme movements in local markets.

    “We stay with our short SGD/INR and long JPY/KRW cross position for high carry returns and potential capital gains respectively”, added Scotiabank.

    The U.S. Fed is expected to deliver a dovish rate hike or postpone it in mid-December, which might stabilize and rebound market sentiment. Then global excess liquidity chasing higher returns will stimulate emerging market Asian currencies again till the end of 2016, stated Scotiabank.