IN THE past month, the US dollar has strengthened against several Asian currencies – spelling bad news for the region’s trade sectors, while offering limited benefits to its tourism markets.
The currency has strengthened 2.5 per cent against the Singapore dollar in the past month, while gaining nearly 3.9 per cent on the ringgit. It has strengthened around 3.7 per cent on the yen.
Since Nov 6, the day of the US elections, the greenback has been up as much as 2.7 per cent and 3.4 per cent against the Singdollar and ringgit, respectively.
A stronger US dollar fuels inflation in countries with weaker currencies, and makes it harder for them to pay their debts denominated in the currency.
The greenback could continue to strengthen, with IG market strategist Yeap Jun Rong noting that it could benefit from a Trump administration.
“Markets rush to price for a less dovish (Federal Reserve) outlook, given that most of Trump’s policies around tax cuts, spending plans and tariffs were likely to see little resistance with a ‘red wave’,” he said.
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Charu Chanana, chief investment strategist at Saxo, said fiscal policies such as tax cuts and deregulations are likely to support growth and drive yields, lifting the greenback.
Singapore dollar, yen and ringgit set to appreciate
The future performance of Asian currencies will depend largely on the direction of the US dollar, which is likely to be influenced by US President-elect Donald Trump’s policy priorities, said IG’s Yeap.
But for now, the currencies will probably trend lower against the greenback as Trump’s economic plans and global trade stance remain ambiguous, he added.
DBS senior currency economist Philip Wee believes that the Fed will lower rates from 4.75 to 3.5 per cent in mid-2025, where it will stay through 2026.
He said that if US gross domestic product, inflation and jobs data “stop surprising and soften again”, the Fed could ease monetary policy and lower rates in 2025.
This could lead to the Singdollar, yen and ringgit appreciating against the greenback, he said.
Phillip Securities Research’s head of research Paul Chew said that near-term currency movements are influenced primarily by economic conditions, interest rate differentials and central bank interventions.
He expects the Singdollar to remain strong in the short to long term, given Singapore’s higher interest rate differential compared with its Asian neighbours, as its rates are closely tied to US rates.
Moreover, the Monetary Authority of Singapore upheld its existing policy on the Singdollar nominal effective exchange rate in October, with CIMB’s director of investment research and advisory Jason Kuan expecting this policy to remain unchanged in the near term.
“Thus, the US dollar will likely stay range-bound against the Singdollar for now. We also expect the US dollar to appreciate gradually against the Singdollar over the next 12 months as the pace of rate cuts may slow down,” he added.
As for Malaysia, Kuan projects a slightly stronger ringgit against the greenback, as policymakers are expected to keep the monetary policy unchanged amid lower Fed rate cuts.
Commenting on the yen, DBS’ FX and credit strategist Chang Wei Liang is projecting a gradual recovery over the medium to long term.
This is because the yield gap for the yen against other currencies is expected to narrow in 2025, as the Bank of Japan raises rates, while the Fed and European Central Bank lower theirs as inflation slows.
Chang’s forecast is for USD/JPY to dip back towards 150 by the end of 2024, before easing towards 139 by end-2025.
Impact on Asia’s trade and tourism sectors
Chanana of Saxo pointed out that Trump’s renewed focus on tariffs could “weigh heavily” on currencies of trade-exposed economies, particularly those in Asia and the eurozone.
Trump has proposed various tariffs, including 60 per cent on China and 10 to 20 per cent on global imports. A stronger US dollar would also mean higher import costs for Asian countries, which tend to rely heavily on imported oil and other key commodities, said IG’s Yeap.
That may increase inflation risks in the region. “Most Asian export-driven economies also have significant trade relations with the US, so any follow-through of US tariffs could affect export demand,” he added.
On the tourism front, Chang said that while a stronger greenback may make travel more affordable for US travellers to Asia, the overall impact on the region’s tourism sector is minimal.
This is because the number of US visitors to Asia is smaller compared with intra-Asian travel.
“For Singapore, in particular, the outcome of US dollar strength is that Asian currencies will soften relative to the Singdollar,” he added. “This may weigh more on Asian tourist arrivals in Singapore, particularly those from India, Japan and Korea.”
