The Malaysian ringgit, along with the Thai baht and South Korean won, may be the most sensitive to negative US trade policies, Standard Chartered (StanChart) flagged.
“Political rhetoric points firmly towards intensified negative US trade policies against China,” StanChart said in a note. “Asia, in particular, faces a short-term negative impact on growth and trade sentiment given the economic importance of China, even as trade routes re-align over the medium term.”
More domestically driven economies such as the Philippines, Indonesia and India, however, are likely to be less sensitive, StanChart said. Still, Asean could face a hit to growth sentiment from disruptive policies between the world’s two largest economies due to its reliance on trade, the bank cautioned.
That is the conclusion after StanChart examined the potential impact of the US election on regional currencies based on a variety of indicators to proxy the potential negative trade policy effect, including changes in the US dollar against Chinese yuan traded in the offshore market.
The bank also looked at impact on foreign exchange from US monetary policy changes with the dollar index as a guide, and assumed fewer-than-expected rate cuts by the Federal Reserve (Fed) as higher import costs due to tariff hikes and sustained loose fiscal policies raised inflation pressure.
Based on its end-2024 policy rate projections, US rates would still be higher than those of many regional economies and only the Philippines, Indonesia and India may have higher interest rates though their rates are low versus recent history, StanChart said.
On fiscal policy, StanChart said higher deficits and US Treasury yields would continue to support a stronger US dollar, and the Indonesian rupiah, Malaysian ringgit and Thai baht, which are included in bond indices, would be more sensitive to change in US yields versus their own bond yields.
In situations where US Treasury yields rise more due to supply concerns or US monetary policy changes, “these currencies may be affected more”, StanChart added.
Source: The edge malaysia
