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The EM Asian currencies particularly the high-yielding INR, IDR and PHP are expected tp recoup their recent losses and rally amid accommodative external liquidity. In the meanwhile, regional currencies will remain susceptible to hovering US-China trade tensions, especially the export-driven KRW, TWD and SGD, according to the latest research report from Scotiabank.
However, the so-called business relocation and investment diversification could provide some buffer to the MYR and THB. Escalating trade disputes between the US and China will impel the Fed to cut rates further amid falling US manufacturing PMI and consumer sentiment index.
On Friday, Fed Chairman Jerome Powell repeated at the Jackson Hole Symposium that the US central bank "will act as appropriate to sustain the expansion," while emphasizing its little ability to influence international trade negotiations.
"We expect the Fed to deliver more reductions in its benchmark interest rates and to re-expand its balance sheet later if necessary to raise the reserve balances when defending the target range for the fed funds rate," the report commented.
US President Trump also complained about the strength of the USD, sparking fears that the US Treasury Department could intervene to weekend the greenback. Rising expectations of more Fed rate cuts and mounting risks of US Treasury currency intervention will further weigh on the DXY Index, until the USD resumes its safe-haven status.
The Chinese central bank is expected to step in to smooth excessive movements as a disorderly yuan depreciation is not in China’s interest at current stage. The dollar/yuan will likely trade around 7.1 in the near term, with risks of heading for 7.2 if the US-China tensions escalate further, Scotiabank further noted in the research report.
The S$NEER index that is running around the centreline is anticipated to fall further towards the middle of the lower half of the MAS policy band on hopes for the monetary authority reducing the slope from the current 1 percent annual pace in mid-October.
