Currencies of emerging markets across Asia could weaken against the US dollar and currencies pegged to the greenback due to the impact of coronavirus. However, the Indian and Pakistani rupee could appreciate if the impact of Covid-19 prolongs and affects those countries directly, say analysts and industry executives.
The persistent uncertainties regarding what impact the coronavirus will have on the global economy, alongside the lack of clarity over how long it will take to find a cure, points to ongoing risks throughout emerging markets. European and other major currencies have skidded against the dollar but the Indian, Pakistani and Sri Lankan currencies are more or less stable and range-bound for quite some time.
In addition to the virus concern, lower oil prices and interest rates will also influence these currencies.
Jameel Ahmad, global head of currency strategy and market research at FXTM, said emerging market currencies have weakened against the US dollar this year, while safe-haven assets such as the US dollar, Swiss franc, Japanese yen and gold, are benefitting from the market uncertainty.
The currencies of India, Pakistan and Bangladesh are considered as developing markets, meaning they have each fallen into the above complex where investors are reluctant to invest in riskier assets due to coronavirus concerns.
"Still, should investor anxiety over the virus accelerate further, the path of weakness opens up for additional losses. This can stretch the Indian rupee towards record lows against the US dollar [above 73 or 19.9 versus the dirham], should investor anxiety over the virus impact on the world economy accelerate," he said.
"The same can be implied to the currency of Pakistan. Despite it strengthening so far in 2020, dollar-rupee can go back towards 160 (43.6 against the dirham). Due to the managed floating/pegged status of the Bangladeshi taka, the currency encounters limited volatility in comparison to others," he added.
Adeeb Ahamed, CEO of Lulu Exchange, feels that the Indian currencies would hover between 70.30-72.80 against the greenback (19.15 to 19.83 versus the dirham). The Pakistani rupee, on the other hand will trade in the range of 153.50-156.50 (41.78-42.63 versus the UAE currency) in the first half of 2020.
Rajiv Raipancholia, CEO of Orient Exchange, said the Indian and Pakistan rupees are going to appreciate against the dirham during the first half of 2020 due to prevailing low crude oil prices and increased flow of US dollars into these countries.
He sees the Indian currency moving to 19.00 or even below, while the Pakistani rupee appreciating to 40 by the first half.
Raipancholia forecasts that the Philippine peso will depreciate in the first half as the government starts to spend on infrastructure.
"The current account deficit in the Philippines is expected to increase in 2020 due to government spending, which will lead to peso depreciation; it can depreciate to 14.25 by the first half of 2020. While the Bangladeshi taka is unlikely to see much movement and is expected to remain stable in the range of 23.35 to 23.40 against the dirham," he added.
What will influence currencies?
Ahamed said the impact of the epidemic, the US-China trade war, political turbulence in developing economies such as India and Pakistan, volatile stock markets and the UAE's oversupply in the retail and banking industries will impact the movement of these Asian currencies.
"Furthermore, if the euro breaks the 1.0800 mark against the dollar, currencies may slide significantly. But the chances of the euro breaking 1.0800 is very remote. As of now, all the currencies are moving within a narrow range, and are by and large stable for quite some time, despite the breakout of the coronavirus," said Ahamed.
Raiponchalia said oil prices, gold prices and an interest rate hike by the US are some of the factors that will drive Asian currencies. But currently, China and other Far Eastern countries have been facing some major challenges since the past two months.
Ahmad said due to the multiple unknown aspects over the coronavirus - including how it can be contained when travel restrictions will resume, can a cure be identified, how long it would take to find a cure and what impact it will have on global GDP - will influence the currencies.
He also said risks can include world central bank interest rate policies and geopolitics.
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