The AUD has surprisingly risen 1.7% over the past two weeks despite heightened global growth fears caused by the escalating U.S.-China trade war.
Equally surprising has been the resilience in emerging market assets, with the EM ETF (EEM) rising around 3.5% in the same period. The AUD/USD and EEM ETF do not always correlate, but track each other closely at times. Between April 17 and May 23, the AUD/USD fell over 4.5% and the EEM ETF slid around 11% as trade war uncertainty and global growth fears intensified.
The recovery in both since then might simply be a correction combined with profit-taking and bargain-hunting.
Another explanation could be the dovish turn in Fed expectations that has contributed to the steep fall in U.S. yields and broad USD weakness.
Large fund managers such as BlackRock view EM as presenting investment opportunities based on current valuations. In a Click here BlackRock said: "Economic reforms and policy stimulus support EM stocks.
Improved consumption and economic activity from Chinese stimulus could help offset any trade-related weakness.
We see the greatest opportunities in EM Asia". They like selected Southeast Asian markets, but also recognize that "a worse-than-expected Chinese slowdown or disruptions in global trade would pose risks to the entire region."
aud/eem Click here