Weaker dollar lifts Asian currencies
BENGALURU: The outlook for emerging Asian currencies has brightened compared to the beginning of the year, driven largely by a weaker dollar on fading expectations for major US tax cuts any time soon, a Reuters poll has found.
Most Asian currencies have got the better of the dollar, which has taken a beating on growing concerns over President Donald Trump’s inability to deliver on promises.
The Chinese yuan, a major focal point for global markets in recent months as authorities scrambled to stabilise it and flush out speculators, looks set to end the year in better shape than previously thought.
The Taiwan dollar is among the best performers in Asia, up nearly 6% this year. The Korean won, Malaysian ringgit, Singapore dollar and Thai baht have gained more than 4%.
A survey last week of more than 60 foreign-exchange strategists suggested many major Asian currencies will hold on to most of the gains made this year over the coming 12 months.
That is in contrast to a poll in January, which predicted a steep fall on expectations for fiscal stimulus and a faster pace of Federal Reserve interest-rate increases.
“There has been some disappointment in lack of progress in the US in terms of pushing through fiscal reforms and tax reforms, which is one of the reasons why the dollar hasn’t done that well,” said Julian Evans-Pritchard, China economist at Capital Economics.
“We still expect a small fiscal package at some point, probably in the next year, but the market has started to question Trump’s ability to get as much done and I don’t expect any kind of major fiscal stimulus to help the dollar jump higher.”
The Chinese yuan and Indian rupee have gained over 2% against the dollar this year, with half of those gains made over the last two months.
The yuan is predicted to trade at 6.95 per dollar by the end of this year, compared to 7.2 forecast at the beginning of the year. The rupee is tipped at 65.5 compared with 69.5 seen in the January poll.
While the outlook has definitely brightened for Asian currencies, it is mainly due to the loss of momentum in the dollar with countryspecific factors secondary.
Bets in the latest poll have turned less bullish for the dollar as much of the Fed’s policy tightening plan has been priced in, and the real risk now is that the central bank may be pushed off its path.
The outlook for regional currencies is also supported by better economic performance and reforms in some markets.
But a separate Reuters poll on positioning showed speculators trimmed their bullish bets in most of the Asian currencies, even as they increased their long positions in the Indonesian rupiah and the Thai baht.