Post September FOMC and BoJ risk events, Asian currencies continued to lag the risk rally in equities. The lack of a convincing recovery in the CNY and new sources of caution surrounding the US elections, amongst other things, could persist to limit a meaningful recovery in Asian currencies in coming weeks. The Asian FX markets may be more cautious relatively, but even then, there are scant signs of recent movements bracing for a non-Clinton victory/”Trumpoline” effect, which suggests the tail risks of an Asian FX selloff may get fatter in the sessions ahead.

• In the end, the swings in Asian currencies in September were dismal relative to the anticipation. Admittedly, intraday movements reflected nervous sentiment and general lack of conviction.
• The missing piece for a convincing rally in Asian currencies post FOMC was the lack of recovery in the RMB index, even though USD/CNY fell modestly. Our end September CNY forecast was overly bullish, but we believe the scope for significant CNY depreciation will remain narrow and maintain our end 2016 forecast at 6.70.
• The new sources of caution may increasingly be geo-political and geo-policy – from the uncertainties surrounding the US election result (“Trumpoline” effect?), Brexit negotiations and commodities.

In this issue

• Brace for “Trumpoline” effect
• China Spotlight: Cautiously steering ship
• Korea Spotlight: Passing safety checks
• India Spotlight: Patel’s coming out party
• Singapore Spotlight:  Positioning for policy plasticity

For full analysis, download report:  Essential Asia: Brace for “Trumpoline” effect (PDF, 2.8MB)