EM Asian currencies likely to trade defensively now, advance when US-Iran tensions fade away: Scotiabank

The EM Asian currencies is expected to trade defensively at the moment but to advance again when US-Iran tensions fade away, according to the latest research report from Scotiabank.

Growing factory activity in the region is supportive of EM Asian currencies, with investors turning net buyers of copper futures. China’s factory activity expanded for the second straight month in December, with output sub-index rising on the nation’s stimulus efforts.

With a wide-ranging application, Doctor Copper is a good leading indicator of the economic cycle. Meanwhile, a slowdown in US and Eurozone factory activity underscores the need for pro-growth policies, the report added.

The Institute for Supply Management (ISM) said on Friday that its US manufacturing index slid to 47.2 last month from 48.1 in November, marking the fifth straight contraction and the softest reading since June 2009.

In the meantime, Euro-zone manufacturing PMI fell to 46.3 in December from 46.9 the previous month. The minutes of the Fed’s December meeting was released on Friday. While it showed the likelihood of a rate cut is higher than that of an increase, US policymakers appeared more confident in their stance on monetary policy.

Fed officials also discussed the possibility of buying other short-term securities beyond Treasury bills (T-bills) if needed to calm the US repo market. In the near term, escalating US-Iran tensions will continue denting market sentiment and weighing on EM Asian currencies. Iran has identified at least 35 US targets that could be hit with retaliatory strikes for the death of its top general.

While it is difficult to predict how severe that retaliation will be, miscalculation could lead things to spiral out of control. On Saturday, US President Donald Trump said the US has targeted 52 Iranian sites that it would strike if Iran attacks any Americans or any US assets in response to Friday’s US drone strike.

Authorities in Wuhan announced on Sunday that 59 people had been admitted to hospital with an unidentified form of pneumonia, up from 44 on Friday.

The Hong Kong-based SCMP newspaper reported Sunday that nine more patients were found with fever or respiratory symptoms after returning to Hong Kong from the city in central China.

Meanwhile, the good news is Singapore’s Ministry of Health (MoH) said in an update on Sunday that the nation’s first suspected case of the mystery Wuhan virus, involving a three-year-old girl from China with pneumonia and a travel history to the Chinese city, is not linked to the cluster there, Scotiabank further noted in the report.