POLITICS IS NOW DOMINANT DRIVER FOR CURRENCY MARKETS, WATCH IT CLOSELY
By Gwyneth Yeo
Source: The Edge
http://smr.theedgemarkets.com/article/p ... e-87358173
EM currencies could continue to weaken if Trump makes good on his threat to restrict trade.
Among the currencies in Asia that are likely to be affected by this are the MYR and IDR as well as the Singapore dollar (SGD), Korean won (KRW), Thai baht (THB) and China’s renminbi (RMB). This is because these countries are heavily reliant on trade.
$15 billion fleeing Asian bonds and stocks this month alone — close to 30 percent of year-to-date inflows to the region
The pain for emerging markets will intensify in 2017, citing, in part, the rising cost of servicing dollar debts amid a strengthening greenback relative to local currencies, and higher Fed policy rates.
The outstanding dollar-denominated credit to the rest of the world has more than doubled over the past 10 years to nearly $10 trillion"
Another risk factor: a repatriation of U.S. corporate earnings held in Asian markets, if Trump makes good on his campaign promise to reform the tax code.
Deutsche strategists calculate Singapore has $100 billion of such funds alone, underscoring the city-state's status as center for treasury departments around the world.
Nomura was already bearish on the dollar against the euro and now it's adding the yen.
Yields in Germany and Japan are both around zero, meaning that the downside risk was very limited, unlike in the U.S.
It said it expected the euro could reach $1.25 or higher in coming months, while the dollar/yen could fall toward 100 to 105.
Nomura said it was already short the pound against the euro as well as the dollar and the New Zealand dollar.
Now it's added Canada's loonie.
"There are some encouraging signs coming through in the Australian economy, with investment intentions upgraded, business conditions elevated and momentum in the labor market positive," it said.
It added that, while the Reserve Bank of Australia was in no hurry to raise rates, the next move would still likely be higher.
"On the other hand, we believe the Mexican peso will continue to face depreciation risks on the back of the uncertainty surrounding NAFTA negotiation and the presidential election ahead."
The dollar commands the lion’s share of the world’s $11.3 trillion of international reserves.
Nordvig estimates a half-trillion dollars could flow into the euro in the next two years, equal to a 25 percent boost in the currency’s share of reserves.
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