Week In FX Asia – EM Woes Go Beyond Tapering And Soft China Data

This weeks Emerging Markets FX landscape bore witness to some extreme price action moves, well beyond the “Fragile Five” that will surely have convinced many investors to contemplate cutting exposure to the region even further.

The EM price movement is not just about the Fed’s tapering plans – investors are also trying to adjust their portfolios to the global market concerns as to whether China can smoothly deleverage its financial sector, and on the timing of the Fed’s first rate hike as QE draws to a close.

Currently, there are no obvious reasons to want to buy the region, in fact the EM currencies with current account deficits and low FX reserves will remain the most vulnerable. Topping many analysts’ lists and source of potential contagion remains the Turkish Lira (TRY). Political constraints on the Turkish Central Bank (CBRT) and dwindling FX reserves would suggest that the country faces a massive battle to stem the loss of market confidence that has certainly widened this week.

After the initial euphoria of the CBRT aggressive rate hike earlier in the week, the TRY continues to trade lower and is ending this Friday’s Euro session on fresh day-lows (2.2832). The market continues to gravitate towards the relative safety of the JPY and the USD after both weak Euro inflation numbers and a disappointing German December sales data print early Friday morning is not helping the 18-member single currency’s plight.

China’s growth prospects are a global concern, with many analysts beginning to slash their Q1 2014 growth forecast from their prior call of 7.4% to a new growth rate of 6%. The governments reform agenda rolled out late last year were greeted with some euphoria by the market. Now that the dust has settled, it’s naïve to suspect that the implementation of reforms could proceed without causing some economic pain to the worlds second largest economy. China continues to face the “three R’s: retreat in growth, structural reforms, and credit risks.”


WEEK AHEAD

* USD ISM Manufacturing
* AUD Reserve Bank of Australia Rate Decision
* NZD Unemployment Rate
* GBP Bank of England Rate Decision
* EUR European Central Bank Rate Decision
* USD Change in Non-farm Payrolls
* CAD Unemployment Rate
* GBP Gross Domestic Product Estimate

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell
Dean Popplewell

Latest posts by Dean Popplewell (see all)