The landscape for emerging Asian currencies appears to be deteriorating further as US President Donald Trump intensifies the trade conflict with China by announcing fresh tariffs. This development has quashed any notions that his threats were merely strategic bargaining tactics.
Over the past week, currencies in the region have been on a downward trajectory, with the Thai baht and South Korean won both experiencing declines close to 2%. The escalating fears of a global trade war have significantly dented investors’ appetite for risk.
While Asian currencies had previously enjoyed a rally earlier this year, much of that momentum has been undone. This reversal is compounded by several regional central banks opting to reduce interest rates in an attempt to bolster growth.
Eric Lo, a fund manager at Manulife Investment Management based in Hong Kong, highlights the looming dangers on the horizon, stating that the outlook for Asian currencies faces considerable threats, particularly if the US opts for a more stringent tariff policy against Asia. Moreover, the inclination of Asian monetary authorities to reduce policy rates might restrain any currency appreciation.
Recent tariff concerns are just one of the multiple challenges besetting Asian currencies. Nations such as South Korea and Thailand have joined the ranks of those reducing rates, diverging from the global trend seen in places like Brazil. Concurrently, the strengthening of the US dollar, buoyed by increasing demand following Trump’s presidency, has further pressured Asian currencies.
As per analysis from abrdn, volatility is likely to characterize emerging Asian currencies this year, fueled by trepidations over escalating global trade disputes. Nevertheless, these currencies might find some respite if signs of a slowdown in the US economy begin to emerge.
