The fate of Asian FX in 2023 was largely a function of US dollar strength, overlaid with a myriad of local economic factors, which saw some currencies perform better than others at different times, though the broad theme was Asian FX losses against the USD. The Malaysian Ringgit came bottom of the pack, losing more than 5.5%, while Indonesia’s rupiah, India’s rupee and the Phillippine peso all made smaller losses, weakening by around 0.5%. All currencies have nevertheless lost ground to the US dollar in 2023 year-to-date, and we would anticipate all of them making up some, though probably not all of this lost ground in 2024.
Within the FX pack, some currencies were essentially propped up by the local central bank, which stepped in to manage volatility. That sums up the Chinese yuan and Indian rupee and likely means that they will underperform their peers when broad trends call for some appreciation against the USD. Indonesia and the Philippines have taken a slightly different tack, using monetary policy tightening to support their currencies, and in turn, they too may see their 2024 upside capped, especially if they choose to remove some of this tightening.
China’s macro story is also likely to be a strong factor limiting the upside when (and indeed if) it eventually materialises. With the exception of India, China is the single largest trading partner of every country in the region. That could help to cap any upside in the North Asian currencies in 2024, as none are likely to totally shake off the drag from a more sluggish CNY in 2024 and our China outlook remains for only modest growth in 2024.
One factor that we shouldn’t discount in 2024 is the possibility that in removing Japan’s negative policy rates in mid-2024, a seismic shift in the JPY could occur that pulls other Asian FX along for the ride. We’d put this out as a risk case rather than a base case, though we do seem to be making glacial progress in this direction. As an isolated event risk, this is one we will be keeping firmly on our radar, even if it is not a central view.
The other factors that are likely to feature heavily are geopolitics and external demand. On the geopolitical front, we start the year with Taiwan’s presidential elections. Historical precedent leads us to expect that Mainland China will respond with military confrontations across the Straits of Taiwan, which are likely to manifest through weaker Taiwanese stocks and a weaker Taiwan dollar. The extent to which this happens will be heavily dependent on which candidate is leading the polls.
