Asia FX Shifts: Joint Intervention Sparks Aussie Underperformance
The joint US-Japan intervention in the yen has removed its divergence from other Asia FX currencies. This change may signal broader Asia emerging market FX outperformance, altering where investors deploy capital across the region.
Australia's dollar, a liquid proxy for Asia, may underperform as some of that capital rotates back into emerging markets. The AUD/NZD cross is an important one to watch, with Australia's larger and more liquid market likely bearing the brunt of the adjustment.
The US economy remains the deciding factor in this story, with a moderation in US economic exceptionalism potentially providing the optimal backdrop for sustained Asia FX rally. A weak US dollar would be a sub-optimal outcome, sapping demand for Asian manufactured goods.