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The threat of an escalation of the US and Celestial trade war triumphed the greenback and hit primarily on the positions of the currencies of developing countries.
Based on the reports of Bloomberg, the salvo released by Donald Trump on May 10 for Chinese imports in the amount of $200 billion helped the US currency strengthen and caused damage to EM assets - from Taiwan and the Republic of South Africa to Brazil.
According to Salman Ahmed of Lombard Odier Investment Managers, "The currencies of developing countries are most vulnerable to the escalation of the trade war of the two largest economies in the world. A quick solution to the problem is hardly worth the wait".
As tensions increase in trade relations between Washington and Beijing, traders are trying to understand whether developing countries are able to overcome the problems that caused the exchange rates of national currencies to rise and fall in the US dollar, or at least be able to withstand the strengthening of the American currency. In turn, they could take advantage of the interest rate and higher returns.
JPMorgan Chase strategists doubt this. Last week, they moved to a position "below the market" in EM currencies, including the South African rand and the Taiwan dollar.
"A change in the direction of trade negotiations could lead to a downward revision of forecasts for the growth of currencies of developing countries. We believe that the market needs to adjust its expectations depending on the results of trade negotiations between the United States and China", representatives of the bank said.
"It is the most undervalued topic on the market," commented by Thomas Korterg, an economist at Pictet Wealth Management.
Experts at Goldman Sachs warned that there may be many currencies in the line of fire - from the euro to the South African rand and the Chilean peso.
"Taiwan and South Korea could lose the most if the situation escalates. Won and Chinese yuan, as well as the Taiwanese, Australian and Canadian dollars, are subject to risks, and the euro can fall quite strongly. To protect against downside risks, I advise you to take short positions in these currencies or invest in bonds of the respective countries", said by the head of the currency strategy at Westpac, Richard Franulovich.
Nordea Investment Funds believes that "If Washington and Beijing fail to make a deal that will prevent an all-out trade war, then the Chinese yuan will be 10% depreciated. This can create a domino effect on the currencies of developing countries sector".
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