EM Asian currencies likely to prop up on easing U.S.-China trade tensions over weeks ahead, says Scotiabank

The EM Asian currencies is expected to prop up on easing trade tensions between the U.S. and China over the weeks ahead, including the yuan on the back of the Fed’s softer tone and China’s pro-growth policies, till US stock recovery leads to a marked rise in market-implied odds of Fed rate hikes for 2019, according to the latest research report from Scotiabank.

A three-day trade negotiations between midlevel American and Chinese officials concluded in Beijing on Wednesday afternoon, with progress towards an agreement but little sense of when to reach a deal.

In addition, many Fed officials expressed the view that, especially in an environment of muted inflation pressures, the Committee could afford to be patient about further policy firming. China’s looming PPI deflation poses a downside risk to US CPI inflation, providing scope for the Fed to ease rate hikes this year, the report added.

Bloomberg reported on Wednesday that China’s finance ministry is set to propose an annual fiscal deficit target of 2.8 percent of GDP for 2019, compared to 2.6 percent of GDP for 2018.