Asia FX: Country specific factors to the fore - ANZ

Analysts at ANZ suggest that while they are positive on Asia’s growth prospects and currencies in 2018, there will be greater differentiation by investors, and as a result, we are likely to see more varied moves across the different currencies in the region. 

Key Quotes

“The CNY looks set to remain broadly stable now that capital outflow pressures have eased. The authorities will want to maintain the CFETS RMB Index within a stable range, even as they allow the yuan to be more market determined. The potential for onshore China bonds to be included in global benchmark indices is positive for the currency if realised.” 

“KRW and TWD are two currencies that are the most sensitive to growth prospects and portfolio flows. So long as the global outlook stays positive, and tightening by the US Federal Reserve is carried out in a gradual manner, the TWD and KRW should be able to weather any volatility in capital flows. Interest rate increases by the BoK will be supportive of the KRW.”

“Likewise, we expect the Monetary Authority of Singapore to exit from their current neutral policy stance and tighten in the second half of next year. Singapore manages its monetary policy via the exchange rate, so policy tightening will involve a strengthening of the nominal effective exchange rate.” 

“Though we expect Thailand’s interest rates to stay low, the sizeable current account surplus will continue to be the main driver of THB strength. MYR also looks set to benefit from interest rate increases from Bank Negara Malaysia, as well as a strengthening economy and the improvement in oil prices.” 

“We expect the currencies of economies with current account deficits to underperform. They also happen to be the least export sensitive. Despite sound underlying macroeconomic fundamentals, the IDR and INR are expected to see some weakening in their nominal exchange rates, as the strong portfolio inflows received by both countries in 2017 are unlikely to be repeated.” 

“PHP is expected to remain under depreciation pressure due to its weakened external balance. After years of running current account surpluses, it has gone into a small deficit in 2017 due to strong import growth. A further deterioration in the current account deficit will see PHP weakness in 2018.”