Emerging Asian currencies are expected to lose ground in the year ahead as monetary tightening from the Federal Reserve gathers pace, but uncertainty on future US trade policy will cap dollar gains, a Reuters poll found.
All major Asian currencies, except the Philippine peso, have risen against the dollar this year as investors turned tail on the greenback on growing doubts about the US administration's ability to push through its promised stimulus and tax cuts.
But the latest poll showed dollar bulls will take charge again soon, with Asian currencies seen ending this month lower and slumping further in the next 12 months, largely underpinned by expectations for a slightly faster pace of US rate hikes. "We expect the Fed to raise rates __more rapidly this year and the next, faster than what the markets expect. We do think the dollar will start to strengthen at some point," said Julian Evans-Pritchard, economist at Capital Economics.
Minutes from the latest US Federal Reserve meeting suggested the outlook for two __more rate hikes had not changed and that most policymakers think the central bank should begin trimming its $4.5 trillion balance sheet later this year.
Following the Fed's rate hike last month, China's central bank raised short-term interest rates for the third time in three months in March to stave off capital outflows and keep the yuan stable. Adding to the near-term risks to where the yuan trades is the outcome of a two-day meeting between President Donald Trump and his Chinese counterpart Xi Jinping that got underway on Thursday.
In one month, the yuan is predicted to trade around where it is was on Thursday, 6.90 per dollar. It is then expected to weaken to 7.05 in six months and fall further to 7.10 in a year, according to the poll of nearly 60 foreign exchange strategists conducted this week.