Asia FX Talking

Market sentiment has improved, but like the pandemic, progress is not steady, and remains slow and vulnerable to shocks.

Executive summary

While there are still a couple of economies in the region where the virus still seems to be rampaging, for the most part, lockdowns have got it under control, and now marks the period of reopening, a process that is maddeningly slow, but aimed at preventing renewed spikes in infection.

For most economies, the nadir of activity will come in April. May is unlikely to be substantially worse, and in some cases, where lockdowns have been eased, could see some growth. This, however, is likely to be very pedestrian.

And all of this comes against the backdrop of some renewed hostility on the trade front. We know how that went last time – USDCNY heading sharply higher, and dragging currencies like the KRW with it, while a stronger USD threatens the stability of EM current account currencies, IDR, INR and PHP.

Pit that against a general tendency to look for positive developments – rumors of vaccine progress for example, which will drive flows back to EM currencies, and we have all the makings for some very volatile currency moves ahead. That increased volatility, rather than any strong directional call, seems the most reasonable near-term forecast.