Essential Asia: The Monkey’s First Leap

We think Asian currencies are likely to still be tethered to the RMB, which is still likely to be subject to the authorities’ allowing of corporate outflows to dominate.

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The Lunar New Year holidays allowed market participants to take a breather, but most probably held their breath in anticipation of more turbulence after the holidays. We have closed out all our Asian FX trade recommendations (long USD/KRW, long USD/SGD and short USD/INR) on reduced confidence in the USD’s initial strength and the ongoing uncertainties surrounding China. It may require a leap of faith to look beyond the mixed and confusing market signals but for now, fear looks to be the monkey on the market’s back and we prefer to stay nimble and neutral in the Asian FX space.

Key highlights:

  • The monkey’s first leap in twelve years brought about more market volatility.
  • The BoJ’s surprise introduction of negative interest rates in late January saw Japan become the latest target for the market’s constantly evolving list of bogeymen.
  • Continued discussion of a ‘Brexit’ added to market jitters fuelled by China and oil.
  • While we acknowledge this in our forecasts for the FX Majors, we are maintaining our Asian currencies forecasts. We think Asian currencies are likely to still be tethered to the RMB, which is still likely to be subject to the authorities’ allowing of corporate outflows
    to dominate.

For full analysis, download report: Essential Asia: The Monkey’s First Leap (PDF, 1 KB)