Asian currencies to rise as mkts price in Fed policy shift

Asian currencies will gain some ground against the US dollar in the next twelve months despite sputtering regional economies and dwindling yields, according to a consensus forecast in a Reuters poll.

Emerging Asian currencies have been among the worst-hit in the global sell-off that was triggered in late May after the US Federal Reserve signalled a possible reduction in its stimulus programme.

The announcement sent investors racing out of risky Asian bets, in turn dragging most equity indexes and currencies in the region lower.

But analysts said markets have largely priced in the Fed's shift in policy and the US dollar stood to gain little when the stimulus tapering eventually happens.

The poll of 65 currency strategists and economists over the past week showed all nine emerging Asian currencies were expected to appreciate in the next year, with the Philippine peso and Indian rupee expected to lead with over 4 percent gains.

The peso has lost some 5.4 percent and the rupee is the worst performing currency in Asia ex-Japan so far this year.

But while large remittances and inflows, along with strong economic fundamentals, have kept investors bullish on Philippines, India's gaping current account deficit and policy inertia have caused large scale fund outflows from the country.

"The general picture is that of US dollar strength," said Leong Sook Mei, ASEAN head of global markets research at BTMU.

"But, since the Fed has signalled that there is a possibility of tapering in its quantitative easing programme, the selling should stabilise and the US dollar may give back part of the gains."

A majority of analysts expect the Fed to start tapering its bond buying programme sometime in the fourth quarter this year and put the amount of the first cut at USD 20 billion.

Analysts were however split on which type of bonds the Fed would buy less of with the consensus equally split among treasuries and mortgage backed securities.

The Fed has pumped trillions of dollars into the economy to aid job creation and spur growth, weakening the US dollar and forcing investors to seek high yielding assets in emerging markets.

Those flows will likely reverse now that the US economy is seen gaining traction and growth in Asian powerhouses, China and India, sputters.

China's yuan will probably weaken further against the dollar this month if the economy shows further signs of slowing, before resuming gradual appreciation that should see it gain more than 1 percent over the next 12 months the poll showed.