| Asian currencies fall across the board as US dollar strengthens Asian currencies hit lowest level this year against the dollar |
Currencies in the ASEAN region started the first month of the second quarter by sliding further against the US dollar, with some currencies falling to fresh lows and others falling to multi-year lows, as recent data signaled a bright outlook for the world's largest economy.
As of April 1, the US dollar index – which measures its value against a basket of six major currencies: the euro, yen, pound sterling, Canadian dollar, Swedish krona and Swiss franc – rose about 50 basis points to 105.
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Asian currencies are likely to continue to slide this year despite signs that the US Federal Reserve could soon cut interest rates, global analysts say. Emerging market currencies typically rise when the Fed cuts interest rates and the US dollar weakens. But that may not be the case in 2024 as the US dollar is expected to benefit from shifting expectations of a soft landing in the US economy rather than a recession. The US presidential election and uncertainty about the Chinese economy could continue to support the US dollar later this year, said Saktiandi Supaat, head of foreign exchange strategy at Maybank.
Asian currencies are not rallying, the fact that the dollar is positively correlated with the performance of the US stock market is because it is a soft landing story, not a recession story around those rate cut bets.
However, analysts also point out that Asian currencies have rallied in the past year on expectations that the Fed will cut interest rates. Admitting that this is a bit of a contrarian view, Asian currencies could slide and domestic demand in the region could be weaker than in typical easing cycles.
Some analysts say Asian currencies such as the Chinese yuan and the Indian rupee could strengthen on the back of a US interest rate cut later this year, with the South Korean won likely to be one of the main beneficiaries.
Foreign exchange analysts predict the won could rise 5% to 10% if the US easing cycle deepens, but only 3% if it is shallow. While many economists expect the Fed’s first rate cut to come in June, JPMorgan predicts it could be “pushed back” but still sees three rate cuts by 2024. US inflation picked up again in February, with the consumer price index rising 0.4% on the month and 3.2% from a year earlier.
Inflation is somewhat stable at 2.5-3%. This will give investors more reason to be cautious about asking for too much through interest rate cuts, while bank investments remain oriented towards sectors that will benefit from global growth as well as the US and global manufacturing sectors.
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