All Asia currencies seen down for third year

23 Dec 2015 | Author: | No comments yet »

All Asia currencies seen down for third year.

Indonesia’s rupiah, South Korea’s won and the Singapore dollar are projected to decline the most in 2016, with India’s rupee seen depreciating the least. While the US Federal Reserve on Wednesday indicated four interest-rate increases next year, Taiwan cut on Thursday and economists are forecasting reductions in China, South Korea, Thailand, India and Indonesia to spur growth. China’s slowdown is hurting Asian nations with strong trade linkages to the world’s second-biggest economy, and the Aug 11 devaluation of the yuan clouded the outlook for a currency that had been source of stability in Asia during past crises. A measure of swings in the currency reached the highest since August on Dec 14, after an arm of the central bank unveiled a new yuan index comprising 13 currencies, a development seen as setting the stage for a further depreciation.

Indexes compiled by the Bank for International Settlements show the yuan is still the strongest among 24 emerging-market currencies in trade-weighted terms after adjusting for inflation, hurting China’s export competitiveness. “China is actually gaining some competitiveness on a trade- weighted basis” with the help from the weaker fixing, said Craig Chan, the Singapore-based head of foreign-exchange strategy for Asia ex-Japan at Nomura Holdings Inc. With this week’s policy tightening by the Fed already priced in, going forward Asian currencies will be more sensitive to moves in the yuan, he said. Citigroup Inc, the world’s biggest foreign-exchange trader, Bank of America and Nomura recommend selling the won and Taiwan dollar against the greenback given their close economic ties with China. Asia’s largest economy accounts for 34.3% of South Korea’s total trade, according to the Japanese brokerage, followed by the Philippines at 25% and Thailand, Malaysia and Taiwan at about 22% each.

China is likely going to favor macro-stability and the currency is part of it.” The IMF predicts growth in Asia’s developing economies will slow to 6.4% next year from 6.5% in 2015, with China’s expansion decelerating to 6.3% from 6.8%. Further easing is also forecast in Indonesia, Thailand and India. “This impending Fed tightening cycle is without a strong synchronized global recovery and export rebound,” said Bank of America’s Piron. “Typically this would be bullish for Asian currencies as they would appreciate as their current-account surpluses expand on improving exports.

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