Experts expect Asian currencies - particularly those of India, Pakistan, Bangladesh, Sri Lanka and the Philippines - to lose further value against the US dollar in the third quarter of 2020.
Forex analysts believe that sluggish growth in these emerging economies and the impact on remittances due to job losses of expats, as well as China-India border skirmishes, will keep regional currencies under pressure over the next quarter.
However, some of these currencies are likely to regain lost ground in the latter part of 2020, they say.
Adeeb Ahamed, managing director of Lulu Financial Group, sees the Indian rupee hitting 21 versus the UAE dirham in the third quarter from the current 20.76 level, but believes it could recover to 20.40 in the fourth quarter.
Similarly, while the Pakistani rupee may slip to from 45.46 now to 46.30 in the third quarter, it is reckoned to recover to 44.80 in Q4.
Ahamed sees the Bangladeshi taka dropping from 23.13 to 23.95 in the third quarter but recovering to 22.9 in Q4 while the Philippine peso could dip to 14.30 versus the dirham in Q3 and regain some lost ground at around 13.25.
Rajiv Raipancholia, CEO of Orient Exchange, sees Indian rupee depreciating further in second half of 2020 and cross 21.25. Similarly, Pakistani currency will also fall further to 46.25 versus dirham in the second-half of 2020. Sri Lankan rupee will continue to be volatile and is likely to slump to 54.35 versus dirham from its current level of 50.4.
Among other currencies, Bangladesh taka, which has been trading steadily between 23.10 to 23.20 against dirham in the past six months, and likely to trade at the same levels during H2 2020, added Raipancholia.
Philippine peso has been appreciating since the past couple of months from 14.16 to 13.58. During the second half of 2020, peso is likely to fall and can fall back to 14.16 again.
Han Tan, market analyst at FXTM, noted that the Asian currencies recovery is highly contingent on the global economy's post-pandemic recovery.
The Indian rupee is expected to strengthen towards the 75 level against dollar (20.43 versus dirham) by Q4, barring another spike in geopolitical tensions, with much of the downside risks already priced in, he added.
"The fall of markets and currency is expected in Q3, and we expect the economies to consolidate and recover in the final quarter of this year", said Adeeb Ahamd.
"The reason for the dip in Q3 is the impact of the lockdown on corporate results for the June-ending Q2, which is expected to fall below expectations. Since all trade settlements would be in US dollar and as UAE dirham is pegged against the greenback, the possibility of currencies to slide against the UAE dirham is very much possible. Most of the currencies of developing nations are already down and this may discount the damage to some extent, although we feel that rupee might test 77 or 77.20 against the US dollar in the coming weeks and then reverse," he added.
Raipancholia said the growth rate in India is sluggish and there are no new foreign inflows due to the pandemic. "There is also border tension with China which will lead to an increase in defence budget. Exports from India have also reduced. All these factors will force Indian currency to depreciate further. Pakistan has similar issues such as the pandemic and low forex reserve which will lead to depreciation in its currency," added Raipancholia.
Sri Lanka depends on tourism and due to the pandemic this industry has been affected for the next one year. Therefore, its currency will lose its value further.
With Bangladesh economy likely to see decent growth, hence, taka will continue to be steady as Dhaka maintains a close control over its exchange rate.
"While Philippines is still having moderate inflow from expatriates and also due to reduced demand for import for capital goods, peso has appreciated against dollar. With lot of expatriates returning home unemployed, peso will be affected during the second half of 2020," said Raipancholia.
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