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[00:00:22] Introduction & The "Limbo of War"

  • [00:00:22] Introduction & The "Limbo of War"
  • [00:03:53] China: Fiscal Stimulus & CNH Outlook
  • [00:06:00] The Korean Won (KRW) Outflow Paradox
  • [00:08:00] EMIA Central Bank Divergence Matrix
  • [00:10:29] Colombia: Election Risk & COP Outcomes
  • [00:13:27] Turkey: Judicial Shock & TRY Outlook
  • [00:14:40] Geopolitical Reopenings: The Strait of Hormuz Macro Trade

On this page

  • [00:00:22] Introduction & The "Limbo of War"
  • [00:03:53] China: Fiscal Stimulus & CNH Outlook
  • [00:06:00] The Korean Won (KRW) Outflow Paradox
  • [00:08:00] EMIA Central Bank Divergence Matrix
  • [00:10:29] Colombia: Election Risk & COP Outcomes
  • [00:13:27] Turkey: Judicial Shock & TRY Outlook
  • [00:14:40] Geopolitical Reopenings: The Strait of Hormuz Macro Trade
Podcast/May 31, 2026/7 min read/youtu.be

Limbo of war | 30 May 2026 | Macro Minutes | RBC Capital Markets

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00:00:22 Introduction & The "Limbo of War"

  • Host & Guests: The episode is hosted by Avasani, joined by Luis Estrada (LATAM FX Strategist) and Dasha Parko (EMIA FX Strategist). It was recorded across May 27th and May 28th, 2026 [00:00:22].

References

  1. Original source (youtu.be)

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Published
May 31, 2026
Read time
7 min read
Progress0%
  • The War Limbo: The core macro backdrop is the prospect of a potential resolution to the ongoing war between the United States and Iran [00:00:38].
  • Historical Ceasefire False Dawns: Host Avasani notes that the market has seen this setup before, counting no fewer than 1, 2, 3, 4, 5... eight previous episodes where the two belligerents dangled a deal or a temporary ceasefire [00:00:53].
  • The Importer Trap: In all eight past episodes, net oil-importing, oil-sensitive currencies—specifically the Korean Won (KRW), Thai Baht (THB), and Turkish Lira (TRY)—rallied in temporary exuberance, only to surrender all gains and end up weaker than before a week later [00:01:14]. Investors are cautioned against loading up on risk before details emerge [00:01:34].
  • Wartime Playbook (Oil-Neutral RV): While in this state of limbo, RBC's playbook advocates running Relative Value (RV) trades—pitting one oil importer against another—to neutralize direct energy and war risk exposure while biding time [00:01:54]. RBC recently expressed this via a bullish KRW position versus other inflation/oil-sensitive Asian currencies [00:02:34].
  • Post-War Playbook: When a firm resolution arrives, a post-war world looks significantly better for EMFX. RBC favors battered oil importers like KRW and THB [00:02:59]. In LATAM, they have already entered a tactical short CAD/CLP recommendation to position for this outcome [00:03:31].

  • 00:03:53 China: Fiscal Stimulus & CNH Outlook

    • The Trump-Xi Catalyst: Avasani highlights that the meeting between Donald Trump and Xi Jinping in May 2026 marked the culmination of a long, drawn-out trade war [00:04:00]. Previously, China could not cleanly address domestic growth or announce major fiscal expansions, but the handshake allows them to shift focus inward [00:04:14].
    • Stimulus Expectations: Following the initial March stimulus post-National People's Congress (NPC), further fiscal measures are expected in the coming weeks and months [00:04:40]. It will not be a "bazooka," but it will reinforce China's cyclical narrative, driving the next leg of downside in USD/CNH [00:04:52].
    • RBC Structural Trade: RBC remains structurally bullish on the Renminbi, maintaining a long CNH position versus a basket of USD and EUR (equally weighted) [00:05:03].
    • Asymmetric Policy Protection: If Beijing's stimulus disappoints, policymakers have shown a "revealed preference" for a stable-to-strong currency, keeping CNH protected [00:05:09].
    • Core Structural Risk (EU Protectionism): The primary risk to this long CNH view is escalating vocal protectionist threats from the European Union. If the EU formalizes concrete trade barriers against Chinese exports, the PBOC will lose its core incentive to maintain a strong CNH fix [00:05:29].

    00:06:00 The Korean Won (KRW) Outflow Paradox

    • Ostensibly Strong Fundamentals: The Won's underperformance is highly frustrating given macro backwinds: a robust trade surplus, structural bond inflows from Korea's ongoing inclusion in the World Government Bond Index (WGBI) running through November, and an abatement of retail outflows into foreign equities [00:06:06].
    • The KOSPI Passive Outflow Drag: The core impediment is heavy foreign equity selling. The KOSPI index has doubled over the past six months [00:06:36]. Because its explosive growth outpaced how quickly benchmark portfolio managers could manually alter global allocations, passive funds found themselves mechanically overweight South Korea [00:06:53].
    • Rebalancing Horizon: To track global indices, asset managers must sell down their outperforming Korean stock holdings, producing large capital outflows that crush the KRW [00:07:02]. This position trimming is not yet finished. RBC remains on the sidelines but plans to re-enter a high-conviction bullish structural KRW position once passive rebalancing concludes and USD/KRW trends downward [00:07:16].

    00:08:00 EMIA Central Bank Divergence Matrix

    Dasha Parko details a distinct three-tier monetary policy divergence across Europe, the Middle East, and Africa (EMIA) driven by the Iran conflict [00:08:07]:

    • 1. Easing Tiers (Israel & Hungary):
      • Bank of Israel (BoI): Resumed rate cuts on Monday, May 25th, with more in the pipeline [00:08:24]. However, the governor's hawkish communication indicates a high bar for physical FX intervention, meaning monetary easing alone will not reverse the underlying structural appreciation trend in USD/ILS [00:08:36].
      • National Bank of Hungary (NBH): Building clear momentum to initiate a cutting cycle at their upcoming June meeting, provided oil/energy prices stay stable and the Forint (HUF) avoids sharp sell-offs [00:08:51]. Cuts will likely only slow HUF strength, as it remains anchored by expectations of unlocked EU funding and domestic fiscal consolidation [00:09:02].
    • 2. Tightening Tiers (Turkey & South Africa):
      • Central Bank of Turkey (CBRT): Implemented an immediate "backdoor" liquidity tightening rate hike as soon as the Iran conflict flared up [00:09:24].
      • South African Reserve Bank (SARB): Expected to deliver a formal rate hike on Thursday, May 28th, 2026, with further hikes expected to be highly gradual [00:09:31].
    • 3. The Vigilant Middle (Poland & Czech Republic):
      • Czech National Bank (CNB): Holding fire but hyper-reactive. The governor stated earlier in May that the board will actively debate either holding steady or raising interest rates at their next policy meeting [00:09:49].
      • National Bank of Poland (NBP): Firmly on hold in the near term but demonstrating a sharp hawkish shift. The NBP has closed the door on near-term rate cuts and signaled an openness to hike if inflation projections shift upward [00:10:05].

    00:10:29 Colombia: Election Risk & COP Outcomes

    Luis Estrada outlines three deterministic market paths for the Colombian Peso (COP) surrounding the first round of the presidential election on Sunday, May 31, 2026 [00:10:29]:

    • Candidate Landscape: Three primary contenders dominate: Left-wing Ivan Cepeda (representing current President Petro's faction) leading polls at a weighted average of ~39%; Far-right lawyer Aelardo De La Espriella running an aggressive, Trump-style digital/religious campaign at ~30%; and Center-right Senator Paloma Valencia pulling ~18% [00:10:51].
    • Scenario A (The Tail Risk): Ivan Cepeda secures an outright first-round victory by crossing the 50% threshold (RBC models a 30% probability). This guarantees a continuation of Petro's policies and fundamental fiscal degradation. Market Impact: A massive COP sell-off of ~12% from current levels—representing 1.5 times the average historical election sell-off [00:11:14].
    • Scenario B (The Discontinuity Gap): Cepeda fails to cross 50% but exits the first round with a lead wider than 10% over runner-up Aelardo. This wide gap could demoralize Valencia's center-right voter base, potentially pushing them toward Cepeda in the run-off. Market Impact: A front-loaded COP sell-off of 5% to 7% in anticipation of a eventual leftist victory [00:12:32].
    • Scenario C (The Bull Case): Aelardo (or potentially Valencia) forces a run-off with a first-round margin against Cepeda tighter than 10%. Market Impact: COP advances positively, appreciating 2% to 3% against the US dollar as a combined conservative coalition becomes highly viable [00:13:02].

    00:13:27 Turkey: Judicial Shock & TRY Outlook

    • The Political Intervention: A controversial Turkish court ruling removed the main opposition party (CHP) leader, reinstating the former party head who lost to President Erdogan in 2023 [00:13:27].
    • Market Interpretation: Local financial markets viewed this as an arbitrary weakening of institutional opposition, instantly stoking market anxiety regarding potential snap elections [00:13:51].
    • Currency Dynamics & Playbook: While early snap election rumors usually cause accelerated currency depreciation due to fears of an electoral dovish shift, Parko argues a policy pivot is not a given this time [00:14:03]. The central bank remains fundamentally committed to holding policy tight to curb inflation and buffer the currency. As a result, USD/TRY will continue to trend higher, but at a significantly slower, more controlled pace than what is currently aggressively priced in by the forward curve [00:14:16].

    00:14:40 Geopolitical Reopenings: The Strait of Hormuz Macro Trade

    • The Geopolitical Macro Hedge Unwind: As geopolitical alignments point to a slow grind toward an Iran nuclear deal and a reopening of the Strait of Hormuz chokepoint, global asset managers must unwind their regional macro hedges [00:14:40].
    • The Chilean Peso Asymmetry: To hedge broader emerging market risk during the conflict, foreign institutions aggressively shorted low-carry, oil-importing currencies. A prime example is the Chilean Peso (CLP). Foreign positioning in USD/CLP is currently stretched to a massive 2.2 standard deviations above historical norms (extreme short CLP) [00:15:04].
    • The RBC Trade Expression (Long CLP / Short CAD): When an Iran peace deal materializes, the forced short-covering of CLP hedges will spark a violent appreciation in the currency, further amplified by Chile's underlying positive structural exposure to booming copper prices [00:15:22]. To capture this, RBC recommends going tactically long CLP while shorting the Canadian Dollar (CAD). CAD has behaved as a "mini-US dollar" and a geopolitical safe haven during the war, making it an ideal funding leg to maximize alpha on an Iran resolution headline [00:15:35].

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