Emerging Market Asia

EM Asia

With 100 days of unexpected clear sailing for Asia FX under our belts, local EM currencies continued to strengthen despite the reflationary trade fading and commodity prices flagging as inflows remain robust with the greenback floundering and   US yields falling.Also,  the markets maximal negative view of  US protectionism has given way to a more utilitarian outlook as the US administration are addressing pockets of concern while taking a more fragmentary approach.

Given the disappointments in US policy and economic data since the dovish Fed hike in mid-March, it’s unlikely we’ll see any shift in Fed forward guidance which should continue to support inflows to EM Asia as the USD should remain soft while the Fed dot plots remain unaltered.

However, there does exist some archival evidence that seasonality in  May is typically negative for EM and commodity-linked currencies which do suggest the APAC EM space may get off to a cautious start this month given these historical patterns.  But unless there is some massive surprise from either the  French election second ballot or impetus from a more hawkish Federal Reserve board, it’s  more likely the overhang from murky US economic policy will continue to keep the dollar on the defensive and US yields contained. So if seasonality risks do coalesce, I would expect EM traders to be in fade the move mode in the absence of any particular fundamental driver for this seasonality quirk.


The softer US dollar and interest rate environment will continue to support the INR carry trade and investor yield appeal should remain robust.

On the rating front, it’s surprising that India’s credit rating has continued to be a grade above junk and unchanged since 2007. The expected rating upgrade will appeal to a broader spectrum of foreign investors, and there should be an acceleration of inflows.


The Yuan continues to consolidate with dealers eyeing this week’s PMI gauges.But The near -term fate of the Yuan is very much linked to US interest rates. With 0 expectations for a rate hike during this week’s FOMC, traders will look past this week’s  event and focus on Friday’s Non-Farm Payrolls.The data will likely weigh large on market expectation for June US interest rate hike. Currently, the market is pricing in a 70% probability of a June hike.


The undervalued Ringgit continues to play catch up with its regional peers as the US dollar wobbles, and the local economy remains resilient. While oil prices remain a concern, the outlook remains uncertain. But with the Ringgit and Malaysia assets underweight, there should be a strong appeal in this benign Federal Reserve environment and even more so as the BNM introduces more onshore market liberalisation initiatives down the road. As such, expect  Malaysia  Bonds to continue rallying with robust offshore demand.


Geopolitical concerns continue to hobble the Won, but the KRW should strengthen once these concerns eventually fade. But with Sabres still rattling, investors will likely view other ASEAN currencies a bit more favourably until the war clouds dissipate. Also, Trump’s recent trade tirade or a call to rewrite—or rip up the current trade agreement( Korus)  with South Korea caught the market off guard on Friday. But whether it’s little more than a NAFTA  styled ” test balloon” or not, the timing is flat out wrong with geopolitical tensions still frothing.. Friend or foe it appears no one is exempt from the wrath of President Trump 

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.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes