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Markets across much of emerging Asia traded in a narrow range ahead of US payrolls data, with the exception of Indian bonds that swung wildly after a bigger-than-expected interest-rate cut.
Bloomberg’s Asia Dollar Spot Index dipped 0.1% on Friday, with the stock benchmarks in Taiwan, Hong Kong, and mainland China also slipping. Bucking the trend was India, where the Nifty 50 advanced and the 10-year bond yield slid as much as 11 basis points. It later recouped the losses to trade flat at 6.25%.
Global funds shifting money away from the US and back to Asia has been a big theme for investors in recent weeks. Data due later on Friday is likely to show US hiring slowed last month, potentially giving the Federal Reserve grounds to cut interest rates this year.
An index of Asian currencies versus the dollar has already advanced 2% this quarter, and further Fed easing may help extend their gains. So would an easing of trade tensions, though the most recent call between President Donald Trump and China’s Xi Jinping failed to lift sentiment.
“A weaker NFP print would reinforce the narrative that US exceptionalism is indeed fading,” Malayan Banking Bhd. analysts wrote in a note “We hold on to selling USD.”
Currency valuation has emerged as a central theme in the trade talks between the US and other countries, though in its first report on foreign-exchange practices since Trump returned to office, the Treasury Department declined to name any country a manipulator. China, South Korea, Taiwan, Singapore and Vietnam all feature on the US watch list.
Even with US scrutiny of exchange rates, a number of market participants foresee further EM currency gains. JPMorgan Chase & Co. this week suggested investors boost their exposure to the currencies of developing markets. The firm said it was positive on the South African rand, Thai baht, Brazil’s real and Mexico’s peso.
For India, the deeper-than-expected 50 basis point cut to the repurchase rate signals that policy makers are worried about growth against the backdrop of global trade tensions.
“We still expect INR to underperform,” analysts at Nomura Holdings Inc. wrote in a note following the decision. The bank said it is long EUR/INR and also positive on Indian rates.
–With assistance from Malavika Kaur Makol and Bhaskar Dutta.
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