The Japanese yen has resisted the wider strengthening of the USD in the past year, reflecting sporadic demand for safe-havens in the midst of vacillating trade, geopolitical and market risks, noted Scotiabank in a research report. The large and persistent current account surplus of Japan leave the JPY less prone to capital flight and underpin its “refuge” status. The Japanese yen is expected to gain modestly against a softer US dollar in the coming year and anticipate some JPY under-performance on the crosses as trade tensions wane, said Scotiabank.
Meanwhile, China’s phase-one trade deal with the U.S. and also the accommodative policy stance of G-10 central banks might sustain a risk-friendly mood for Asian currencies in the first quarter of 2020. The Chinese yuan is expected to move towards 6.80 as trade tensions alleviate. Export-driven currencies such as the South Korean won and the Taiwanese dollar are also expected to benefit.
The Thai baht is also likely to advance but to a lesser extent and at a slower rate relatively, given that its 2019 outperformance hurt Thailand’s tourism and export competitiveness.
“A pro-risk mood will continue to drive international investors towards higher-yielding regional assets denominated in the Indian rupee (INR), Indonesian rupiah (IDR), Malaysian ringgit (MYR) and Philippine peso (PHP)”, stated Scotiabank.
Additional deregulation in Indonesia might bring in more foreign investment inflows and if Malaysia retains a Market Accessibility Level of 2 that is needed for the FTSE World Government Bond Index eligibility, the MYR will benefit.
“Despite continued civil unrest, the Hong Kong dollar (HKD) will likely remain firm amid portfolio inflows and recovering IPO markets. Meanwhile, the Monetary Authority of Singapore (MAS) is expected to stand pat on its S$NEER policy in April, but the Singapore dollar (SGD) will likely rise further along with a strengthening EUR”, added Scotiabank.
