EM Asian currencies likely to weaken further amid continuing Fed tightening, intensifying global risk aversion: Scotiabank

Emerging market Asian currencies are expected to weaken further weaken further amid continuing policy tightening by the Federal Reserve and intensifying global risk aversion, according to the latest research report from Scotiabank.

Turkey’s economic crisis has deepened after US President Donald Trump doubled US import tariffs on Turkish steel and aluminium. It has added to concerns over escalating US-China trade war, pulling down the 10Y UST yield by more than 5 basis points with a rise in the VIX index that is the stock market’s fear gauge.

In addition, North Korea has vowed to preserve its nuclear science. Last Thursday, North Korea’s state-run newspaper, Rodong Sinmun, called the declaration of the end of the war "the demand of our time" and that would be the "first process" in moving toward a fulfillment of the June 12 deal.

South Korea’s Yonhap News reported on August 10 that China-based North Korea tour operator INDPRK said it received a notification from North Korean partners that they will stop all group package tours to the North starting Saturday and continuing until 5 September. It has raised the possibility of Chinese President Xi Jinping’s reciprocal visit to the North.

Meanwhile, Worries over a fragile Turkish economy and the risk of contagion in Europe unnerved investors on Friday and sent USD/TRY to a record high. Financial Times reported last Friday that "The ECB is concerned about the risk that Turkish borrowers might not be hedged against the lira’s weakness and begin to default on foreign currency loans, which make up about 40 percent of the Turkish banking sector’s assets", the report added.

Lastly, the USD/TRY currency pair traded at an all-time high of 6.9453, up 8.32 percent at the time of writing.