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The emerging market Asian currencies are expected to rally further amid continued portfolio inflows, while remaining susceptible to the headlines on the US-China trade talks, according to the latest research report from Scotiabank.
With dropping the word "patient" from the June FOMC statement, the Fed hints at rate cuts in the near future. Fed Funds Futures are now pricing a 72 bp rate cut for the rest of the year and a 37 bp rate reduction in the year of 2020.
In addition, the 10-year UST yield has been falling persistently to near the 2.0 percent mark. US President Donald Trump said on Thursday that he expects Fed Chairman Jerome Powell to "do what's right."
Rising expectations of Fed rate cuts will provide scope for other central banks to roll out more monetary easing measures going forward to spur global economic growth, the report added.
In the meantime, fresh hopes for the end to the US-China trade war have sparked risk appetite, prompting investors to chase the high-yielding assets in EM Asia. As we know, the total amount of debt with yields below zero is standing at around USD 12.3 trillion, according to Bloomberg data.
"We maintain our short USD positions again the CNH, INR and IDR, together with a short USD/JPY hedging position. We also stay with our short TWD/KRW cross position amid stabilizing geopolitical situation on the Korean Peninsula," Scotiabank further commented in the report.
