The market is starting to price in rate hikes by the US Federal Reserve, and USD strength in a more meaningful fashion, especially against CNY, KRW, SGD, TWD and MYR. Growth rates in Asia however are still slowing and various Asian central banks are still leaning towards further easing. Against this strong USD background, we have identified the KRW, SGD, MYR, THB, and TWD as being the most vulnerable over the next few months on account of their low carry. At the other end of the spectrum, the INR looks likely to be the most resilient. The RMB appears somewhat resilient, but management regime continues to flummox some segments of the market, although we see increased clarity in the movements of the RMB Index.

• The firmer USD environment looked less wobbly in May and consequently, paved the way for a uniform slide in Emerging Market currencies.
• Price actions in EM currencies look set to be driven by event and policy risks in DM in coming weeks.
• The PBoC has been allowing the RMB to appreciate somewhat, in line with the recovery in the DXY, but with much less volatility.

In this issue

• The dollar strikes back
• Sell in May, but don’t go away
• China Spotlight: Not crazy, just a little unwell
• Korea Spotlight: Stepping out is a “lose-won” strategy
• India Spotlight: Better signals for reforms and Rajan
• Singapore Spotlight: Staying calm and watching the Fed

For full analysis, download report: Essential Asia: The dollar strikes back (PDF, 3 MB)