Most Asia FX set for 2016 losses; yuan depreciates most since 1994

SINGAPORE - Asian currencies rose on the last trading day of 2016 on Friday, but most were set to post annual losses as the U.S. dollar climbed on expectations of higher interest rates next year.

Emerging Asian currencies were generally higher on the day, with the dollar losing some steam after the euro briefly soared on stop-loss buying in thin year-end trading.

"This is more a position adjustment rather than something fundamentally changing in the background," said Sim Moh Siong, FX strategist for Bank of Singapore.

"Our view is still for Asian currencies to weaken over the course of next year," he said.

While Asian currencies could rebound early in 2017 if the dollar retreats, such a pull-back could provide an opportunity to buy the greenback on dips, Sim added.

Investors are waiting to see if U.S. President-elect Donald Trump will quickly push expansionary fiscal policies once he is sworn in on Jan. 20, which would boost expectations for higher inflation and interest rates.

The Chinese yuan was the worst performer among major Asian currencies in 2016, and market watchers expect it to recoil further next year if the dollar continues to climb.

The yuan is down nearly 6.6 percent against the dollar in 2016, putting it on track for its biggest annual fall since China established its foreign exchange market in 1994.

Concerns about capital outflows and a slowdown in China's economy have weighed on the yuan along with the stronger dollar, and investors are also worried about a potential increase in U.S.-China trade tensions under the incoming Trump administration.

The Taiwan dollar is on track for an yearly gain of 2.7 percent, making it the best performing emerging Asian currency in 2016.
The Taiwan dollar had gained a boost earlier this year, helped by large foreign investor inflows into Taiwanese equities.

Overseas investors, however, have pulled money out of Taiwanese equities in the fourth quarter, and that has weighed on the Taiwan dollar as of late.

Emerging Asian currencies have declined broadly since early November as U.S. bond yields jumped on expectations that Trump's proposals for infrastructure spending and tax cuts will boost economic growth and inflation.

Worries about Trump's stance on trade have also weighed on the currencies of export-dependent countries in Asia.

source: news.abs-cbn.com

China expands forex basket, dilutes role of dollar

BEIJING - China said Thursday it would almost double the number of foreign currencies it uses to determine the official value of the yuan, thereby diluting the role of the dollar.

The move to expand the foreign exchange basket used to set a daily reference rate for the yuan, or renminbi, will help Beijing shake off the weakness of the currency against the greenback and project an image of stability in the unit.

The dollar will see its prominence in the basket dented by the newcomers, with its share falling from 26.4 percent to 22.4 percent. It is followed by the euro at 16.34 percent.

Among the 11 currencies to join the 13 existing ones are the South Korean won, the South African rand, the Hungarian forint, the Turkish lira and the Polish zloty, according to the Chinese Foreign Exchange Trade System, which is run by the central bank.

The expansion is designed to "strengthen the representativeness" of the basket and will come into force on January 1, it added.

"The move is aim (ed) to reduce the impact of dollar strength on the overall performance of the basket," said Christy Tan, head of markets strategy in Hong Kong at National Australia Bank Ltd.

China's currency has been under pressure from uncertainty over the health of the world's second largest economy, massive capital outflows and the sharp rise in the dollar following Donald Trump's election victory and anticipation of US interest rate hikes.

However, when valued against the "basket of currencies" as a whole, the yuan fares much better, even seeing a rise over the past four months.

China's communist regime likely hopes the move will project an image of stability and strengthen the international stature of the renminbi after it was welcomed by the International Monetary Fund into its elite currency basket in October.

source: news.abs-cbn.com