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Resurging COVID-19 cases and signs of recovery levelling off hints a risk-off period ahead. The BRL, ZAR and INR are among the most vulnerable currencies while the CNY also faces downside risks after the recent rally, according to Nordea’s Amy Yuan Zhuang.

Key quotes

“Worsening virus situation could deteriorate risk sentiment. The global virus curve is steepening and the number of daily new cases is rising. The BRL and INR are clearly the most vulnerable currencies here due to their rapidly rising number of infections. Should risk appetite deteriorate significantly, it will hit commodity prices as well. As commodity currencies, the BRL, ZAR and RUB will likely face a double whammy.”

“The CNY and the CNH face room for depreciation as well. The rally in early July, triggered by soaring stock prices, was too much and too fast. We think the downside risks on the renminbi will play out in the coming months when the US presidential election intensifies China bashing, and tensions between China and the other large countries start to be priced in.”