• The Emerging Market and commodity currencies (“carry” currencies) have depreciated against USD and EUR in May, in particular AUD and ZAR have been hit.
• We expect stabilisation in China’s data soon, and the Fed is not to end QE in the coming months, which should provide short-term support.
• But going forward, positioning (for carry) suggests the longer-term risks increasing as the global easing reverses, in particular for currencies of countries with large foreign funding needs.
• The worst-case scenario is the reversal of easing not as much a result of strong global growth, but more as a concern over financial stability.
Click here to read the full report: FX Research
Nordea