Weak yuan to pose risks on Asian currencies

Singapore dollar seen appreciating gradually due to sound fiscal outlook.

Despite performing well against the US dollar since the start of 2017, Asian currencies continue to face downside risks brought about by a depreciating yuan, according to BMI Research.
The Chinese yuan is expected to weaken gradually as the currency continues to face capital outflow pressures due to a slowing economy and narrowing interest rate differentials against its trading partner. It has weakened slightly by 0.3% in March, and has been range-trading at around CNY6.96/US$.

The Singapore dollar rose by 0.1% in March, with year-to-date gains standing at 3.5%. It is currently trading at the S$1.40/US$ level, and is expected to remain on a slight appreciatory trend amidst ongoing emerging markets FX stability.

A strong external position, a relatively sound fiscal outlook, and an undervalued exchange rate are seen to strengthen the currency over the longer-term, with forecasts at S$1.410/US$ in 2017 and S$1.370/US$ in 2018.

The Indian rupee was the best performing Asian currency in March, appreciating 2.8% on the back of the Bharitiya Janata Paraty (BJP)’s strong victory in the Uttar Pradesh state elections.
The South Korean won, meanwhile, was the best performing currency YTD, strengthening by 7.8% and 1.1% in March. This rally, however, is unlikely to be sustained amidst currency weakness in China and Japan, as well as ongoing uncertainty involving deposed President Park Geun-hye.

The Philippine peso was the worst performing currency YTD with a depreciation of 1.2%, but is seen to become stable due to robust economic growth and anchored inflation offsetting the drag posed by renewed yuan weakness.