Chinese yuan likely to continue outperforming its regional peers particularly if risk aversion intensifies, says Scotiabank

The Chinese yuan is expected to continue outperforming its regional peers particularly if risk aversion intensifies. Bloomberg reported in the early morning on Friday that China has offered US President Donald Trump a USD200 billion reduction in its annual trade surplus with the US by increasing imports of American products and other steps, citing a Trump administration official, according to the latest research report from Scotiabank.

The positive progress could help ease market fears over hovering trade tensions between the world’s two largest economies as US President Donald Trump said earlier that he doubts the US and China can come to an agreement over trade.

More EM Asian central banks are anticipated to tighten their monetary policy to anchor market inflation expectations and/or defend their own currencies. It may herald a 25 basis points rate hike from the RBI next month that the Indian central bank’s monetary policy committee will meet for three days in June (June 4-6) rather than the typical two days, after the BoK, BNM, BSP and BI that have raised their benchmark interest rates earlier.

Meanwhile, rising oil prices are expected to send the 10-year UST yield even higher amidst strong US growth and inflation outlook, which could spark risk aversion abruptly in emerging markets even though the VIX index remains relatively low. The implied volatility of currencies of the economies running twin deficits such as the INR and IDR will remain elevated and rise further if the VIX index surges later.

Lastly, FxWirePro has launched Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest