Emerging Asian currencies fell in 2014, led by the Malaysian ringgit, and regional units are expected to stay under pressure in the new year due to expectations the US Federal Reserve will hike interest rates and China's economy will stay sluggish. Regional currencies on Wednesday rose as the yen extended gains with investors taking profits ahead of the year-end.
The daily gains were not enough to prompt hopes of rebounds in emerging Asian currencies in 2015 as a solid US economy is likely to drive the Fed to raise interest rates. China's economy continues to slow down. Activity in the country's factory sector shrank for the first time in seven months in December, according to a private survey. "Asian currencies are seen weakening further next year, given possibilities of US rate hikes," said Jeong My-young, Samsung Futures' research head in Seoul.
"Southeast Asian units may suffer more as they are more sensitive to the Chinese economy and oil prices, while Northeast Asia peers may find some support from the US recovery," Jeong added. The dollar was on course to end 2014 with a 12 percent gain against a basket of major currencies, its largest advance since 2005. The greenback is seen strengthening further as a US rate hike will boost its appeal when the Bank of Japan and the European Central Bank are easing monetary policies.
The ringgit was set to be the worst performing emerging Asian currencies of 2014 with a 6.3 percent loss against the dollar, according to Thomson Reuters data. As Malaysia is a net oil exporter, plunging prices slapped the ringgit on concerns they will hurt the country's current account and widen its fiscal deficit. Oil prices fell to 5-1/2 year lows.
"I reckon the ringgit will weaken slower only if oil prices move back to $75-85," said a senior Malaysian bank trader in Kuala Lumpur. On Wednesday, both Brent and US crude stayed well below $60 per barrel. Northeast Asian currencies - South Korea's won and Taiwan's dollar - fell on worries that a sliding yen may hurt export competitiveness. This year, the Taiwan dollar has fallen 5.2 percent, which would be its biggest annual loss since 2001.
The won ended this year with a near 4 percent depreciation, the largest annual slide since the 2008 global financial crisis. South Korea's foreign exchange authorities have been spotted intervening to check the won's strength against the yen. The won rose to its strongest since 2008 against the Japanese currency. The Singapore dollar has lost 4.4 percent this year on slowing economic growth and inflation.
China's yuan has slid 2.4 percent to see its first meaningful annual depreciation since the landmark revaluation in 2005, due to the slowdown hitting the world's second-largest economy. The Indian rupee and the Indonesian rupiah, the worst performing emerging Asian currencies in 2013, both have eased more than 2 percent this year. Those currencies fell less than most regional peers on hopes of economic reforms by their new governments. Thailand's baht was the best performing Asian unit of 2014, with only fractional change, as inflows were attracted after the army seized power in May to end months of political turmoil.