EM currencies, which rallied sharply between mid-January and mid-March, have run into a brick wall and the risk is tilted towards depreciation in coming weeks. In terms of likely catalysts, the list of “known-knowns” seems to be growing and the list of “unknown unknowns” may also be rising in tandem.

Markets remain unconvinced that the US economy can power the rest of the world while at the same time fretting that a Fed hike is still on the cards.

Add to this debilitating dilemma less attractive valuations, particularly for commodity-currencies, falling oil prices and a growing list of political scandals.

The backdrop of a too-tough-to call UK referendum on EU membership in June and US elections in November is only likely to add to EM currency woes.

In Non-Japan Asia, precedent suggests that central banks are unlikely to step in the way of modest FX depreciation given generally subdued exports and inflation. At the very least they are likely to intervene in the FX market to slow any currency appreciation, particularly where FX reserves are modest.

If the pressure on EM currencies becomes acute, high-yielding commodity currencies (BRL, IDR, RUB) may well underperform. Conversely, NJA currencies may do relatively better as NJA central banks still have the firepower to lean against rapid and/or sustained depreciation.

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