Investing.com — Asian currencies are at risk of further weakness amid the dollar’s recent strength, especially if the upcoming U.S. election results in a Republican victory, JPMorgan analysts wrote in a recent note.
JPM analysts noted that the dollar had strengthened in recent sessions amid growing speculation of a Donald Trump victory over Kamala Harris in the upcoming election, with such a scenario creating headwinds for Asian markets.
Trade-dependent currencies would likely face weakness as Trump’s agenda includes increased tariffs on several US trading partners, especially China. JPM said the Indian rupee could provide some protection against this trend, based on expectations that the country’s current account will strengthen in the coming months.
The Chinese yuan remains vulnerable to a “Trump repricing,” JPM said, as Trump has outlined steep import tariffs on the country as part of his agenda.
While Chinese markets have benefited in recent months from optimism about more local stimulus, a Trump victory could sharply undermine this trade.
“We see the risk that we will again rise above 7.30 with a potential Trump victory, but fall to a level below 7 with a Harris victory,” JPM said.
The dollar shot to a three-month high in recent weeks amid growing speculation about a Trump victory, which is expected to result in more inflationary policies in the coming months.
The dollar was also supported by a set of stronger-than-expected US economic data, fueling expectations that the Federal Reserve will cut interest rates at a slower pace in coming months.
This trend affected the Asian currency markets, with major currencies such as the Japanese yen weakening sharply.
Among emerging markets in Asia, China, South Korea and the ASEAN complex, with the exception of the Philippines, have historically been the weakest in times of dollar strength, according to JPM.
The brokerage said India, Philippines and Taiwan were likely to perform better.
Equity sectors with exposure to US income streams could also benefit from a stronger dollar
