Recovery in emerging Asian currencies halted by US tariff risk
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A NASCENT recovery in emerging Asian currencies looks in danger of unraveling as escalating US-China tensions threaten to delay a global economic recovery.
Last week's rally in regional currencies gave way to steep losses Monday after US President Donald Trump raised the prospect of tariffs against Beijing over the spread of the coronavirus.
A slew of weak manufacturing prints also reinforced the risks confronting Asia's export-dependent economies.
Monday's sell-off was headlined by the region's high yielders, the very same currencies which had outperformed their peers last week. Indonesia's rupiah tumbled almost 2 per cent after surging 3.5 per cent in the previous week, while India's rupee plunged about 1 per cent following a 1.8 per cent gain.
The reversal highlights the fragile mood even as the virus outbreak shows signs of stabilising, with strategists now warning of further losses in currencies.
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"The tariff risk returning to the focus could add to the sell-off pressure in financial markets again," said Ken Cheung, chief Asian foreign-exchange strategist at Mizuho Bank.
"The risk rebound in late March came sooner than expected and markets could change back to risk-off mode again."
The slump in manufacturing comes amid signs that regional economies will face more headwinds in the near term.
Indonesia's central bank has cautioned that the nation's economic growth may drop to 0.4 per cent in the second quarter, lower than a previous estimate of 1.1 per cent, due to the virus outbreak. India's domestic output may take another hit after the government extended the nation's lockdown by another two weeks on Friday.
"With investor sentiment taking a back seat and concerns of US-China tensions back on the radar, investor flows into the high yielders are likely to ease up," said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group.
"On top of all these, the month of May has traditionally been a poor one for Asian currencies. BLOOMBERG
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