Short North Asia FX

We are adding the following trade to our model portfolio:

• Short North Asian FX: Long USD/CNH and long INR/TWD. Among the entire EMFX spectrum and with a strong dollar in mind, CNH and TWD stand out as good shorts, whereas INR stands to gain. We take the oil risk out of the India long by pairing it with the short TWD.

• Premise: With the China economy slowing down on the back of its zero-Covid policy, the PBoC is using currency devaluation as a tool for economic support. We think we are only halfway in a CNH weakening move that will eventually take us to the 7.00 area. TWD will weaken as its correlation to CNH is high and its valuation is still reasonably expensive. India could gain from being an insular economy, and having a proactive central bank that intervenes to keep the currency from weakening.

For a full briefing on the CNH view, see here.

We will release a full analysis of the INR/TWD side of the theme tomorrow.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

Bert Gochet is a research at Macro Hive, specialising in Emerging Markets strategy. Between 2009 and 2017, he was co-head of EM strategy with a focus on fixed income and currencies at JP Morgan.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)