Asian Currencies Bearish Outlook Ahead of US Rate Path

Analysts have reinforced their predictions that most Asian currencies will depreciate, as the prospect of US interest rates remaining high for longer and the strength of the US dollar is likely to continue to hurt them, according to a Reuters survey released on June 13.

The survey found that the Indonesian rupiah and the Philippine peso were the most shorted currencies in the region, with predictions for both currencies to fall at multi-week highs.

Reuters received responses to the survey ahead of the release of the U.S. inflation report for May, which showed prices remained steady, and the Federal Reserve's monetary policy meeting, where the bank postponed the start of interest rate cuts until December. However, investors still expect the Fed to cut rates by 0.25 percentage points in September and December.

Analysts at Maybank said on June 13 that the US dollar still has room to strengthen as the inflation trend remains unclear and the market may remain cautious. These experts said that the Fed maintaining high interest rates for a longer period of time will also not be beneficial for Asian currencies.

Analysts have increased their predictions that the Indonesian rupiah will be shorted throughout the year. HSBC analysts said that as long as the rupiah remains under pressure, the possibility of further interest rate hikes by Bank Indonesia cannot be ruled out.

Speculation that the Philippine peso will be shorted has also increased, as the country’s central bank remains on track to cut interest rates in August despite rising inflation. Signaling a possible rate cut ahead of the Fed could add downward pressure on the peso, according to HSBC analysts.

Meanwhile, analysts also said that the Indian rupee - one of the best performing currencies in the region so far this year - will depreciate, as external factors such as high interest rates and geopolitical tensions in the Middle East put pressure on the currency.

Downside expectations also increased for the South Korean won and Singapore dollar, but fell slightly for the Chinese yuan and Thai baht.

The Asian Currency Positioning Survey focuses on what analysts and fund managers believe are the current market positions for nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Indian rupee, Philippine peso, Malaysian ringgit and Thai baht.

According to VNA

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