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Investing.com - UBS expects Asian currencies to appreciate by approximately 3-4% against the USD over the next 12 months, according to a recent report on Asia ex-Japan currencies.
The bank cites Asia’s large net international investment position (NIIP) as a key factor reinforcing the case for stronger Asian currencies versus the USD. Asian corporations, institutional, and private investors hold significant exposure to US assets in their portfolios, most of which remains unhedged due to high hedging costs.
UBS points to the abrupt 10% drop in USD/TWD from late April to early May as evidence that a sudden rush to hedge by large institutions can boost Asian currencies. This effect may be amplified if ongoing trade negotiations make local central banks cautious about conducting FX intervention to avoid being labeled as FX manipulators by the US.
The continued recovery of the Chinese yuan (CNY) also supports a positive outlook for Asian currencies. USD/CNY has eased and stabilized around the 7.15-7.20 range since US-China trade tensions de-escalated in mid-May, with the People’s Bank of China (PBoC) steadily guiding the official daily USD/CNY fixing rate lower to around 7.16 from a high of 7.21 in mid-April.
UBS believes US-China trade tensions have peaked and sees room for further USD/CNY decline, primarily due to broad USD weakness. The bank expects the PBoC to favor a measured pace of CNY appreciation, given China’s subdued growth and inflation backdrop.
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