Weakening Dollar May Lead to More Demand for Hedges in EM Asia

The cost of protecting dollar exposures in Asia is the lowest since April and poised to decline further, creating an opportunity for investors who need to hedge.

Hedging costs have fallen to an average of 0.7% for eight major Asian currencies, according to data compiled by Bloomberg. With the Federal Reserve expected to continue cutting interest rates while Asian central banks near the end of their easing cycle, the cost of currency protection is likely to decline further. The cheapness will enhance the appeal of hedging, according to strategists at Goldman Sachs Group Inc.