Early Vaccine, Biden Win Would Boost Asian Currencies, UBS Says

(Bloomberg) -- An early approval of a vaccine for the coronavirus and a win for Joe Biden in the U.S. presidential election would lift Asian currencies, according to UBS Group AG.

Asia ex-Japan currencies stand to appreciate by 3% to 4% against the dollar in the event such a scenario materializes, the bank said in a Sept. 2 report. The offshore yuan and Thai baht are likely to outperform, with the Chinese currency expected to strengthen to at least 6.7 against the dollar.

“The vaccine has potential to revive expectations of global growth rebound, thinning out the layer of uncertainty weighing on investments,” UBS strategists including Rohit Arora wrote in the report. “Under a Biden presidency, the foreign policy is likely to be more predictable.”

Despite persistent weakness in the dollar, a three-month gain in Asian currencies is at risk of stalling as concerns about the pandemic weigh on sentiment. A growing risk of a delayed or inconclusive result from the U.S. presidential election could also unnerve investors.

While a scenario that combines the early arrival of a vaccine and a win for President Donald Trump would be less supportive, Asian currencies are still likely to strengthen by 1% to 2%, according to UBS. The baht, Indonesian rupiah and Indian rupee would benefit mildly.

UBS will retain its core long exposure in the offshore yuan and South Korean won, while rotating out of the rupiah into a long rupee position, according to the report.

©2020 Bloomberg L.P.