Emerging Asian currencies will hold ground against the dollar this year, with the Chinese yuan likely to gain a little, despite strong expectations the US Federal Reserve will start hiking interest rates, a Reuters poll showed. Still, any gains will probably be muted as disinflation in China and India, coupled with slow growth, will likely prompt their central banks to ease monetary policy. This has prompted analysts to scale back earlier predictions.
In contrast, the Fed is expected to raise interest rates in June, giving a further boost to the dollar. The poll of around 30 foreign exchange analysts conducted this week showed the Chinese yuan will rise 1 percent by December to 6.15 to the dollar, from Friday's 6.208. It is expected to trade at 6.20 a dollar in a month and 6.18 in three months.
"Easing inflation, which reflects lower international oil prices, will allow the People's Bank of China to maintain a monetary easing bias in the coming months," said Sacha Tihanyi, foreign exchange strategist at Scotiabank in Hong Kong. China's annual consumer inflation hovered at a near five-year low of 1.5 percent in December, signalling persistent weakness in the economy but giving policymakers more room to ease policy to support growth.
A Reuters poll last month showed the PBOC is likely to follow through with another cut in benchmark interest rates by March. Last year the PBOC sought to break one-way trades that assumed the yuan would steadily appreciate, and to curb speculation on the yuan by fixing wider trading bands. That
eventually led the currency into a 2 percent in 2014, despite record trade surplus. However, record inflows into Chinese equities last year supported the yuan marginally, while stock indexes rallied more than 50 percent during the year, reaching five-year highs. Fears of falling Chinese house prices turning into an outright crash coupled with slow growth will likely hinder the yuan this year.
The poll also showed the Malaysian ringgit will rise almost 2 percent by December from Friday's 3.55 to the dollar. The ringgit was Asia's worst performer in 2014. A dollar is expected to fetch 3.50 ringgit in a month, 3.51 in three months and 3.49 in a year. The Indian rupee will likely weaken slightly to 63.20 a dollar in a month, 63.50 in three months before ending the year at 63.00, the poll showed.
In 2014, the rupee lost 2 percent against the dollar despite massive portfolio flows into Indian stock and bond markets after a landslide election win by Prime Minister Narendra Modi's party. The inflation rate has also steadily declined in the past several months, raising hopes the Reserve Bank of India will soon cut interest rates to help jack up growth.
"The supportive macro environment continues as disinflation has also helped support fixed income interest, though it remains to be see if the RBI feels comfortable cutting rates in the near term given the widening non-oil trade deficit," said Tihanyi. The latest currency poll also showed the South Korean won will likely depreciate 4 percent this year.