Higher risk EM currencies are likely to remain vulnerable vs. USD - Rabobank

"The strength of the December US payrolls report will bring a reprieve to investors who are fearful about a loss of US growth momentum," argue Rabobank analysts.

Key quotes

"The robust US job creation in December coupled with the upward push in earnings will help vindicate the Fed’s policy outlook, which has been more hawkish than that of the market in recent weeks. That said, not all US data releases have been as strong recently. The December ISM report suggested a weakening in US manufacturing output. Recent releases of factory orders and manufacturing data have also been disappointing. The contradictions between various US data suggest the markets will be strongly focused on economic indicators over the next few weeks in order to assess the pace of growth in the US."

"It is our view that after one more rate hike this quarter that the US yield curve will invert in response to the tightening of financial conditions. This would be seen as a strong indicator of a forthcoming downturn - a factor that will likely hinder further broad-based gains for the USD and boost the demand for traditional safe haven currencies."

"Assuming that fears about slowing global growth prevail, higher risk EM currencies are likely to remain vulnerable vs. the USD, though the fact that the market has already reduced its exposure to this asset class may limit scope for addition falls vs. the greenback. We would expect the AUD and the NZD to also remain vulnerable vs. the USD. Not only are both the AUD and NZD potentially sensitive to concerns about slowing Chinese growth due to trade links, but both have a tendency to initially underperform G10 peers when risk appetite worsens."