MANILA (Reuters): Asian currencies were largely muted on the last trading day of the year, but were poised for sharp annual falls as the threat of U.S. tariffs and prospects of fewer U.S. interest rate cuts next year eroded the attractiveness of risky Asian assets.
The Taiwan dollar inched 0.2% lower on Tuesday, while the Indonesian rupiah was largely unchanged. Both currencies were set for their biggest annual declines since 2022.
South Korean markets were closed, but were the worst performer in Asia this year as the government's efforts to boost the market were overshadowed by signs of a slowdown in exports and domestic political turmoil.
The won dropped 12.5% for the year, its biggest decline since 2008, while shares in Seoul fell more than 9%.
"Risks for KRW (won) are skewed towards further depreciation. The threat of U.S. tariffs, fears of the Fed slowing the rate-cut cycle, higher volatility in RMB (yuan), alongside domestic political uncertainties may continue to weigh on KRW," said Christopher Wong, a FX strategist at OCBC.
The Malaysian ringgit edged 0.2% lower, but was on track for an annual gain of 2.8% in what could be its best year since 2017.
Markets are now bracing for U.S. President-elect Donald Trump's policies around tax cuts, tariff hikes and tighter immigration, which will likely boost prices, bond yields and the dollar, and undermine the currencies of trading partners.
Moreover, the possibility of U.S. rates staying higher for longer has also raised the risk of stark interest rate differentials between the U.S. and emerging economies spurring capital outflows.
"For Asian FX, the fog of tariffs weigh on sentiments. The currencies that are highly sensitive to market developments such as a weaker RMB (yuan), or the Fed slowing rate cuts will come under more pressure," OCBC's Wong said.
Wong said the won, yuan and yen are among the currencies in Asia that may remain weak going into 2025, while others less sensitive to moves in the yuan such as the Indonesian rupiah and Philippine peso may be relatively more resilient.
MSCI's gauge for emerging-market stocks edged 0.3% lower on the day, but was set for a 5% annual gain. Most regional stock markets were up for the year. Taiwan's tech-heavy index soared 28% in its biggest annual gain since 2009.
Equities in Singapore slipped 0.2%, but were set for a nearly 17% annual gain - their best since 2017. Kuala Lumpur stocks were also poised for their best annual show since 2010. - Reuters
