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Another challenging year ahead for Asian currencies in 2016 – ANZ

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 16, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Research Team at ANZ, suggests that Asian currencies face another challenging year in 2016 as the US Federal Reserve is normalising policy at a time when EM Asian growth is slowing.

    Key Quotes

    “The combination of higher US interest rates and weakening domestic growth mean portfolio flows into the region will tail off, with a risk of outflows should investors reallocate funds out of Asia. Repayment of foreign currency-denominated liabilities and the hedging of outstanding liabilities will see continued demand for dollars throughout 2016. We also see increased resident outflows putting pressure on local currencies as they seek better returns offshore.”

    “We forecast broad-based Asian currency weakness of near 4% against the USD over 2016. This is less than the 8% decline recorded in 2015. Our forecasts are slightly more bearish than the consensus.”

    “A larger than expected depreciation in CNY is a risk. We view the CNY as overvalued and are forecasting a measured depreciation. The risk is that the Chinese authorities allow a larger adjustment than we have factored in, which will spill over into other Asian currencies.”

    “We stay bearish on the KRW and TWD, expecting those two currencies to be the most exposed to a China slowdown and further CNY depreciation. IDR is vulnerable due to its current account deficit, which may again see a funding shortfall in a Fed tightening environment, especially if Bank Indonesia cuts policy rates as our economists expects. Though the negative domestic developments that have plagued MYR in 2015 will be resolved, low oil prices remain a headwind for the currency.”

    “The most resilient currencies in our view will be INR, and to some extent PHP. But even the positive macroeconomic fundamentals will not be sufficient to prevent those currencies from declining against the USD. However, the INR’s high yield will provide adequate compensation. The risk to INR is if the economic reform agenda slips. For PHP, remittances and BPO flows will provide underlying support for the currency, but with a lot of positive news already priced into Philippine assets, it will require more unexpected positive developments to spur fresh foreign investor interest.”
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