FXStreet (Delhi) – Sean Callow, Research Analyst at Westpac, suggests that it is hard to see many regional currencies avoiding renewed decline against USD as attention turns to the potential for 100bp in hikes over 2016 and more immediately, the risks around the March meeting. Key Quotes “The Korean won has already struggled since the early Oct EM rally, which of course was partly inspired by the fall in US yields after the weak Sep non-farm payrolls reading. Growth concerns are evident in foreigners’ net sales of $2.4bn in Korean equities so far this month and widespread forecasts for yet more rate cuts by the Bank of Korea, whose key rate is already a record low 1.5%. Korea’s current account surpluses remain large, but this only highlights the skittishness of capital as 1mth USD/ KRW NDFs remain well within striking distance of Aug-Sep highs.” “Of course a key factor in the strong USD/Asia performance at this time was the CNY devaluation. While a similarly dramatic move seems unlikely in Q1, many signs (including the renewed emphasis on the yuan’s trade weighted value) point to sufficient USD/CNY gains to drag the likes of USD/KRW and USD/TWD higher. The trade-weighted yuan has appreciated strongly since mid-2014 and even after the recent upswing in USD/CNY, it is only 2% below multi-year highs. This clashes with the intention of China’s cuts in key interest rates and required reserve ratios.” “Oil inventories remain very elevated, suggesting that new lows in prices are more likely than sustained recovery in Q1 2016. Our expectation of persistent weakness in oil prices in Q1 has mixed implications for Asian FX. For the region as a whole it is an improvement in the terms of trade but only passed through to retail prices in a patchy fashion.” “Oil prices are likely to provide investors with another reason to steer away from the ringgit and rupiah, in favour of the Indian rupee. As well as helping narrow India’s trade deficits, sustained disinflation or deflation of producer prices will reinforce India’s waning inflation problem. Westpac expects India to be a notable bright spot for global growth in 2016, with the economy likely to accelerate from 6.9% in 2015 to 7.9% next year.” Q1 outperformers: INR, SGD, PHP Underperformers: KRW, TWD, MYR, IDR For more information, read our latest forex news.