Consensus expectations at the start of January were broadly constructive for risky assets and for emerging markets. Economists and investors expected a combination of increased fiscal spending and a modest rebound in industrial production, reflecting the US–China trade deal.
However, the effects of the Coronavirus outbreak have been unambiguously negative for most Asian currencies and will have a significant effect on global growth. Consequently, oil prices have declined, which poses problems for oil-producing emerging market economies and currencies. The decline in the oil price also suggests that regional inflation risks are now on the downside, meaning that emerging countries’ central banks can either maintain their currently loose stance or ease policy even further in the months ahead.
There are some exceptions to this broad trend. Emerging market currencies with high real interest rates and strong current account surpluses have performed well and will continue to do so. Our EM macro and FX Strategist Koon Chow and our Global Head of Forex Strategy Peter Kinsella discuss these recent developments and the outlook for the coming months.
Global Head of Forex Strategy
EM Macro and FX Strategist