Asia FX: Continue to face uncertainty and volatility - Nomura

Research Team at Nomura expects Asia FX to continue to face headwinds beyond Trump including from US Fed hikes, potential ECB/BoJ tapering, political shocks (possibly from Europe), deleveraging risk in foreign currency loans and China’s macroeconomic challenges/RMB depreciation.

Key Quotes

“On RMB, despite all the recent measures that we believe were taken to undermine RMB depreciation expectations, we do not believe these measures can sustain RMB stability over the medium-term. While the risk to being short CNH has risen due to the use of CNH liquidity tightening by authorities against short CNH positioning, this policy is likely effective only in the short-term, and supporting this policy stance for a prolonged period of time could eventually raise concerns over FX policy sustainability and increase fears of a one-off devaluation.”

“Overall, we maintain our cautious stance on Asia FX and our view of Northeast Asia (and SGD) underperforming South/Southeast Asia.”