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Asian currencies to fall slightly with Fed set to raise rates

[HONG KONG] Emerging Asian currencies will weaken in the months ahead due to expectations the US Federal Reserve will raise interest rates soon, although foreign exchange strategists in a Reuters poll say that losses aren't expected to be significant.

That stands in contrast to the bumpy ride ahead for emerging markets outside of Asia, especially Latin America, where analysts appear fearful of the impact of higher US rates and Greece's stand-off with its creditors.

"Asian emerging currencies are likely to be more resilient than some of the emerging currencies, such as in Latin America," said Eric Viloria, a currency strategist at Wells Fargo.

In 2013, emerging market assets suffered a steep sell-off when the Fed announced it would reel in its economic stimulus.

However, economic activity in some Asian countries has improved, with a few turning current account deficits into surpluses since then, making them less prone to sell-offs when the Federal Reserve raises rates.

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Also, a strong dollar, which has already put a dent into US company earnings and poses a risk to economic growth there, may push the Fed to tighten policy at a slow pace.

"We think the Fed, when they do move initially, will take a gradual approach and pick up the pace towards the end of next year," Mr Viloria said.

China's yuan is the only currency in Asia expected to stay relatively strong, despite slowing economic growth twinned with a brutal 30 per cent stock market crash that the authorities are trying to stabilise.

The yuan is forecast to trade at 6.21 per dollar in a month and 6.22 by end-September, then strengthen to around its current trading level of 6.20.

Speculative bets for the currency to strengthen were in line with those expectations, having increased to a seven-month high, according to a separate Reuters poll last week.

Expectations for the currencies of Indonesia, Taiwan and Singapore stand in direct contrast to the yuan.

Half the analysts polled said Indonesia's currency was the most vulnerable to a sell-off from a Fed rate rise as the country has large amounts of dollar-denominated debt and its economic growth is softening.

The rupiah will probably weaken to 13,800 a dollar over the coming year, having already lost more than 7 per cent so far this year. It was trading at 13,319 on Friday.

Taiwan's dollar is expected to reach 32.1 per US dollar in a year from 30.87 now. Singapore's dollar was forecast to fall more than 3 per cent in the coming year.

The Indian rupee is forecast to weaken to 64.00 per dollar in one month, 64.45 in six months and 64.80 in one year. It was last trading at 63.68.

South Korea's won, Thailand's baht and the Philippine peso are all expected to weaken around 1 per cent over the coming year.


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