EM Asian currencies likely to rally amid accommodative external liquidity, says Scotiabank

The emerging market Asian currencies are expected to rally amid accommodative external liquidity, while remaining susceptible to external uncertainties including the major central banks’ monetary policy stance, the US-China trade disputes and the Brexit process, according to the latest research report from Scotiabank.

The European Central Bank (ECB) on Thursday set the stage for a renewed attempt to spur the eurozone’s economic growth, with a consideration of reviving purchases of government and corporate bonds to pump money into the region’s financial system.

The renewed QE programme could lower global bond yields further. As of now, the total amount of debt with yields below zero is standing at around USD13.7 trillion, which will keep drawing investors to EM Asian assets for higher returns, the report added.

The US economy rose at a 2.1 percent annual rate in the second quarter, according to preliminary data released by the BEA on Friday. Consumer and government spending helped propel GDP growth in the April-June period, while a pullback in business investment, falling inventories and slumping exports weighed on the number.

Meanwhile, Larry Kudlow, Director of the National Economic Council, said on Friday that US President Donald Trump and his economic advisers met the week to discuss intervening in currency markets to artificially weaken the dollar, but decided against the idea.

But on Friday afternoon, Trump held out the possibility that he could take action in the future by saying he hadn’t ruled anything out, although he hailed the dollar strength.

"Although US GDP growth slightly exceeded expectations, the Fed is still expected to deliver a 25 bp insurance rate cut at the July 30-31 FOMC meeting. The DXY Index will likely remain elevated amid Fed-ECB monetary policy divergence in the coming weeks, with an upward potential," Scotiabank further commented in the report.