For Asia’s top currency forecaster, it’s the trade flows that count.
ABN Amro Bank NV, which led Bloomberg’s emerging-Asia rankings in each of the last four quarters, says Taiwan and South Korea’s current-account surpluses will make their currencies the most resilient in the region this year as the prospect of higher U.S. interest rates lures away investment. The second- and third-placed banks see the Taiwan dollar and won as among the worst performers, arguing that the surpluses are more to do with weak imports than robust foreign sales.
Taiwan’s dollar is already the sole gainer in the region this year, weighing on growth at a time when Asian countries are vulnerable to fallout from China’s stock-market meltdown. ABN Amro’s case is that the trade data outweigh the economic woes of the island and South Korea.
“Inflows are more than outflows,” said Roy Teo, a strategist at ABN Amro in Singapore. “Therefore there’s demand for the won and Taiwan dollar.”
The Dutch lender sees the won retreating 1.3 percent from June 30 to 1,130 per U.S. dollar by year-end and predicts Taiwan’s currency will drop 1.4 percent to NT$31.50. India’s rupee and Indonesia’s rupiah will fall 2.1 percent and 2.7 percent, it forecasts.
Australia & New Zealand Banking Group Ltd. and Danske Bank A/S, ranked second and third in Bloomberg’s survey, say the South Korean and Taiwanese currencies will suffer as shrinking exports curb economic growth.
ANZ projects a drop of 3.5 percent in the Taiwan dollar to NT$32.20 and a 3.8 percent slide in the won to 1,160 this year, while Danske Bank forecasts declines of 6.4 percent to NT$33.2 and 2.2 percent to 1,140.66 won.
“Both economies are struggling,” said Thomas Harr, the Copenhagen-based global head of research at Denmark’s biggest lender. “There’s a clear chance we’ll see weakness in the Korean won. Given the slowdown in China, you’ll see some lagged impact on Taiwan’s economy.”
At more than $20 billion apiece in the first quarter, the surpluses in the nations’ current accounts, the broadest measure of trade, amounted to about 14 percent of Taiwan’s economy and about 7 percent of South Korea’s, the biggest in emerging Asia.
Official figures show the surpluses are the result of imports declining faster than exports. Taiwan’s overseas sales fell 13.9 percent in June from a year earlier, while South Korea’s dropped in each of the first six months of 2015. Authorities in both economies have lowered their growth estimates for this year.
The prospect of relatively buoyant currencies is a bane for policy makers struggling to turn the economies around.
Taiwan’s authorities have stepped up intervention to counter the local dollar’s 2.1 percent gain this year, while South Korea -- whose won slipped 3.4 percent versus the U.S. currency -- is encouraging outflows by easing rules for locals to invest overseas.
Trade-weighted indexes of the currencies versus exchange rates of their major trading peers show the Taiwan dollar reached the strongest level in May since 1997, while the won climbed to a five-year high in April. Both have performed better against the yen than the dollar in the past year, making it harder for companies to compete with their Japanese counterparts in international markets.
“Similar to Korea, Taiwan has a big current-account surplus but it comes on the back of a big contraction in exports,” said Irene Cheung, a currency strategist at ANZ in Singapore. Taiwan’s dollar is “too strong” and the won needs to weaken further, “particularly against the yen.”