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These are the Asian currencies to watch in 2020

Signs of progress in the US -China trade dispute is adding to confidence.

Bloomberg|
Updated: Nov 30, 2019, 09.08 PM IST
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By Simon Flint

With optimism growing that 2020 will be the year the global economy finally turns the corner, it’s worth keeping an eye on the Korean won and Taiwan dollar.

A Bloomberg study of nine emerging Asian currencies shows those two stand out as likely to perform best, based on an analysis of their correlation to global growth, Chinese growth and moves in Treasury yields over the past five years.

While the Indian rupee also ranks high in terms of correlation with global growth, any rise in US yields would likely have a significant offsetting impact given their negative relationship. The Philippine peso, the top performer in the region this quarter, looks set to benefit least from an upswing in growth for the same reason, according to the analysis.

Note: Correlation coefficients range between -1.00 and +1.00 with 1.00 indicating perfect positive correlation, -1.00 perfect negative correlation

currencies

Signs of progress in the US -China trade dispute and a tentative improvement in global economic data are adding to confidence the worst may be over after the world’s deepest slowdown in a decade. A wave of interest-rate cuts from the world’s central banks has also helped, with the easier monetary policy giving a boost to risk assets.

Key Takeaways:
Goldman Sachs Group Inc.’s World Current Activity Indicator index, used in the study, suggests the odds are in favor of a growth rebound in 2020 -- at the end of October, global growth was languishing at just the 7th percentile in data going back to 2011

The won and Taiwanese dollar look best placed to benefit -- they have strong correlations with global activity
The high relative valuation of the Taiwan dollar might limit appreciation potential as shown in a previous Bloomberg analysis

If the Chinese economy continues its managed slowdown, it is likely to have a dampening impact on the region’s currencies -- the rupiah, the baht, and Singapore dollar all have a relatively high sensitivity to Chinese activity.

A rise in US interest rates could be overwhelming for the Philippine peso and rupiah as suggested by their relatively large negative correlations with Treasury yields

As a caveat, while sentiment toward the global economy is improving, the risk of a renewed slowdown remains, which would weigh on Asian currencies

A re-ignition of trade tensions, slide in US consumer spending or concern over the impact of a possible post-election reversal of President Donald Trump’s tax cuts could all impact markets next year
The relative findings on which variable impacts which currency are more meaningful than a face-value reading of the size of the correlation, based on the methodology used.

( NOTE: Simon Flint is an EM macro strategist, who writes for Bloomberg. The observations he makes are his own and not intended as investment advice.)
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