A POTENTIAL Donald Trump victory in next month’s US presidential election could pose risks to Asian currencies, Capital Economics warned.
“We suspect Asian currencies would underperform under a Trump presidency, even if they don’t seem to have been affected worse than others by the apparent rise in his chances of winning lately,” said Thomas Mathews, Capital Economics Asia Pacific head of markets, in an October 25 report.
He said that while Asian currencies had held up relatively well during recent dollar rallies, they remained vulnerable due to factors such as low regional interest rates and the risk of Trump following through on a plan to significantly raise US tariffs.
This could drive a devaluation in currencies like the renminbi by as much as 15 to 20 percent, he added.
Mathews said that Trump’s tariff policies, particularly with regard to China, could impact neighboring Asian economies due to interconnected trade relationships.
“China is a big trading partner for its neighbors, and in some cases they export similar goods as China, meaning their currencies would become less competitive in the face of a renminbi devaluation unless they also depreciated,” he explained.
“What’s more, the region would face the risk of additional US tariffs in to prevent Chinese transshipment,” he added.
The peso last week fell to its lowest in nearly three months, dropping back to the P58:$1 level as the dollar strengthened on expectations of slower Federal Reserve rate cuts and the possibility of a second Trump presidency.
The currency recovered some ground on Monday but remained in P58:$1 territory at P58.225 to the greenback.
Despite recent pressures, Mathews said that many Asian currencies had not seen sharp declines, which he attributed in part to central bank interventions.
Countries like Japan and South Korea, which tend to allow more free-floating currency regimes, were said to have seen more noticeable depreciation. However, other regional currencies remain at risk.
“We agree that much of his (Trump’s) campaign rhetoric probably may not translate directly into policy,” Mathews noted.
“But tariffs are one of the easier parts of Trump’s agenda for him to enact. And the region’s central banks are unlikely to fight depreciation pressure if he does,” he added.
“So our sense is that Asian FX could still be in for a tough ride if Trump were to prevail.”
