EM Asian currencies likely to remain subdued following global trade uncertainties, Fed’s future policy tightening: Scotiabank

External uncertainties including ongoing US-China trade war and the Federal Reserve’s future monetary policy tightening will continue to weigh on EM Asian currencies, according to the latest research report from Scotiabank, in the run-up to the September FOMC meeting, particularly those with twin deficits such as the INR and IDR.

US President Donald Trump on Friday threatened new tariffs on USD267 billion of Chinese goods, in addition to the tariffs on USD200 billion in Chinese products the administration has been preparing. White House economic adviser Larry Kudlow told Bloomberg on Friday that "we will make a decision" in terms of the volume, tariff rate and timing regarding the plan to impose tariffs on USD200 billion in Chinese goods and President Trump is "dead serious" in his determination to push China to reform its trade policies.

Kudlow also said that President Trump is still speaking to President Xi, and would be open to meeting in person. Meanwhile, China's trade surplus with the US hit a new record of USD31.05 billion in August, up from USD28.09 billion in July, according to Chinese customs data released on Saturday. It surpassed the previous record set in June, the report added.

Former PBoC Governor Zhou said in an interview with Bloomberg in Italy on Friday that China could be hit by a change in market sentiment in the event of an all-out trade war with the US even if the direct impact on the economy isn’t that large. He added that with economic growth of 6 percent a year and a floating exchange rate, the Chinese economy was well placed to withstand external shocks.

"We stay vigilant on the spillover effects of other EM currencies such as the ARS, BRL, ZAR and TRY. We also bear in mind that an excessively strong dollar (vs. its major rivals and CNY) is not in the Trump administration’s interest," the report also commented.