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In view of Robert Carnell, Chief Economist at ING, one of the main facts that flipped steady Asian  markets into a state of turmoil from 2Q18, was that the dollar finally succumbed to Fed tightening, and started to rise.

Key Quotes

“IDR in particular, but also INR and PHP, external debts become less manageable. If inflation is also on the high side, then that becomes worse. For the three above, inflation is also of some concern. Throw in high oil prices, and the energy-dependent economies (all of the above) see a further worsening of their external positions  and the inflation backdrop deteriorates further, throwing more doubt onto growth prospects as the central banks try to stop imported price rises from becoming embedded.”

“There is some comfort to be had in the notion that this USD strength is, at least partly, seasonal. End of year demand for dollars to make balance sheets seem better is likely a part of this story. But if so, could linger for months.  But the EUR is also likely being weighed down by what is happening in Italy and its fiscal stance in defiance of EU rules.”

“For now, all this is manageable, and currencies like the CNY remain fairly steady. But the resolve of the Chinese Authorities in the face of a stronger USD could be tested if this pushes much further, and then, all our regional FX forecasts will need a re-think, as the gravitational force of the CNY drags them all into whatever new orbit it moves to.”