Bank of America Warns of 'Chaotic Era' for Asian Currencies

Bank of America has expressed a bearish outlook on Asian currencies, citing a 'chaotic era' for the region's currencies. The investment bank is not optimistic about any Asian currencies, with a particularly negative view on the Chinese yuan, South Korean won, Taiwan dollar, Thai baht, and Vietnamese dong.

In its latest forecast, Bank of America predicts the Chinese yuan will weaken to 7.45 against the U.S. dollar by the third and fourth quarters of 2024. The bank attributes this to delayed Federal Reserve easing, China's disinflationary behavior, and a weak financial account. The South Korean won is also expected to be overvalued compared to its fair value.

Bank of America remains negative on the Taiwan dollar due to equity outflows and the phasing out of non-deliverable forward hedges by life insurers. The Vietnamese dong is expected to face further modest devaluation pressure, while the Thai baht remains vulnerable to geopolitical tensions and higher oil prices.

Why this matters: The bearish outlook on Asian currencies by a major investment bank like Bank of America highlights the economic challenges and uncertainties facing the region. The weakening of these currencies can have significant implications for trade, investments, and overall financial stability in Asia.

While Bank of America is neutral at best on currencies like the Hong Kong dollar, Indonesian rupiah, Indian rupee, Malaysian ringgit, Philippine peso, and Singapore dollar, the overall sentiment remains cautious. The bank did not mention the Japanese yen, which has struggled and fallen above 150 against the U.S. dollar since the Bank of Japan raised rates in March 2024.

Key Takeaways

• Bank of America bearish on Asian currencies, cites 'chaotic era'
• Predicts yuan to weaken to 7.45 vs USD by Q3-Q4 2024
• Expects South Korean won, Taiwan dollar, Thai baht, Vietnamese dong to underperform
• Bearish outlook reflects economic challenges and uncertainties in Asia
• Bank neutral on some currencies, but overall sentiment remains cautious