For the second half of 2016, Asian currencies continue to be vulnerable owing to weakness in economies and uncertainty on US rate hikes prospect. We look at some of the issues on 4 of the biggest economies in Asia.
Bank of Japan (BOJ) remains pressured to support ailing Japanese economy after lacklustre data. BOJ inflation target of 2% remains elusive as inflation worsens in March and April dropping by 0.1% and 0.3% respectively. These disappointing data came amid criticism that the negative interest rate introduced failed to achieve intended effect. Yen may weaken on prospect of additional stimulus later this year to support the economy.
Yuan weakness should persist on poor macroeconomics. Since the start of 2016, Yuan has already weakened 0.92% to date (07 June 2016). China’s outlook remains challenging with gross domestic product (GDP) expanding 1.1 % quarter on quarter in the first quarter of 2016, weakest since data collection. Capital outflow would continue on debt uncertainty owing to US rate hikes prospect pressuring the Yuan further.
Indian rupee is caught in the mix of a strengthening economy against uncertain debt flows, and likely to weaken in a subdued fashion. The better economic data suggest the end of monetary easing phase is close. GDP grew 7.9% year on year in the first quarter of 2016 beating estimate of 7.5%. Inflation rose 5.39 % year on year in April of 2016 higher than the estimate of 5%. However, these better data are overshadowed by emerging-market selloff as foreign funds leave local bonds due to US rate hikes prospect, adding to weakening pressures on rupee.
Singapore’s economic outlook remains challenging and is projected to expand modestly. In the first quarter of 2016, Singapore’s GDP increased by only 0.2% compared to the previous quarter of 6.2%. Singapore’s trade is facing headwinds as major trading partners experience tepid economic growth. The Monetary Authority of Singapore (MAS) had carried out repeated monetary easing to support the economy. The Singapore dollar is expected to remain weak on MAS stance and weak economic outlook.
Asian central banks are expected to continue adopting a monetary easing stance.