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EM Asian currencies are likely to advance somewhat temporarily versus the dollar because of a dropped DXY Index, but will pare their gains soon amid escalating global risk aversion as the US is set to become the next center of the epidemic, according to the latest research report from Scotiabank.
The Centers for Disease Control and Prevention (CDC) on Wednesday confirmed the first possible community spread of the novel coronavirus (COVID-19) in the US, saying "at this point, the patient’s exposure is unknown."
It brings the number of cases in the largest economy to 60, including the 45 cases among Americans who were repatriated from the city of Wuhan and the Diamond Princess cruise ship. As US guidelines recommend testing for a very narrow group of people, the US has tested only 445 people that don’t include people who returned on evacuation flights.
It suggests the US will likely be the next center of the epidemic. In addition, South Korea’s health and welfare ministry said that 505 new cases of COVID-19 infection were confirmed and verified on Thursday, bringing the total number of infections to 1,766 after the country identified its first case on 20 January, the report added.
China’s National Health Commission said in a statement Thursday that the nation faces increasing risks of imported COVID-19 cases, and the epidemic control work remains complicated. It has sparked and intensified risk aversion across the markets, resulting in fresh selloffs in US stock markets, further drops in the 10Y UST yield, weaker DXY Index and lower USD/JPY as we reminded earlier.
Although Fed Funds Futures are now pricing in a total of 75 bp rate cut by the end of July along with the deeply inverted 3M-10Y UST yield curve, the Fed hasn’t changed its wait-and-see stance at the moment.
"In our opinion, a risk-off sentiment would continue and sustain in the US unless 1) the Fed explicitly talks about resuming monetary easing or strongly hints at such kind of measures; 2) the number of confirmed coronavirus cases remains low in the US; 3) the US imposes stricter quarantine rules on suspected cases and; 4) specific COVID-19 medicines and/or vaccines are found and used widely in the treatment," Scotiabank further commented in the report.
