Forex Flash: Geopolitical tensions in Asia highlight risk – Deutsche Bank

FXstreet.com (Barcelona) - The escalating tensions between North and South Korea continue to dominate market headlines overnight. The KRW dropped to a six-month low against the Greenback after the latest news that South Korean workers were refused access to an industrial park (Gaeseong zone) jointly run between the two countries for the first time since 2009.

Demand for South Korean assets has taken a backseat ever since North Korea's 'state of declaration' over the weekend and its decision to restart the Yongbyon nuclear site, which was shut down by the February 2007 disarmament accord. Korea's 5-year sovereign CDS has come off its recent wides but still about 5bp wider on the week. Geopolitical tensions aside the latest non-manufacturing PMI data from China was better, coming at 55.6 in March from 54.5 in February.

According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “This seems to be helping market sentiment domestically, as the market saw the Shanghai Composite (+0.12%) trading up for the first time this week.” Japanese equities took the lead as far as overnight markets are concerned with the Nikkei (+1.9%) up strongly ahead of Bank of Japan meeting headlines. Meanwhile it’s also worth mentioning that Gold had its largest drop in six weeks yesterday, down by 1.5% to test its February $1570/oz. lows.