MUMBAI – A US$6.4 trillion (S$8.5 trillion) foreign-exchange reserve pile in Asia is giving investors confidence that central banks have the ammunition to fight the US dollar’s strength stemming from the US presidential election.
Asian currencies have come under pressure in October, as rising odds of a Donald Trump presidency and uncertainties over the pace of the US Federal Reserve’s easing bolstered the greenback. A Bloomberg index of the region’s currencies just had its worst month since February 2023, with the Indian rupee near its weakest ever and South Korea’s won close to a three-month low.
Strategists expect the losses to extend, especially if Trump returns to power and reignites a trade war. However, a years-long increase in FX reserves means central banks are in pole position to smooth volatility, according to Barclays and MUFG Bank. That firepower is important since the Fed is no longer in a tightening cycle, making interest rate hikes to support currencies a difficult option for Asia’s central banks.
“Asian forex reserves have continued to grow and there’s certainly plenty of ammunition,” said Mr Mitul Kotecha, head of forex and emerging markets’ macro strategy for Asia at Barclays. While markets have priced in a Trump victory, “we still expect to see some further pressure on Asian currencies should that be the case”, he added.
The US$6.4 trillion pile for Asia excluding Japan compares with US$6.2 trillion at the end of 2023 and US$5.9 trillion the year before, according to data from 10 economies compiled by Bloomberg. China accounts for almost half of the reserves, while India’s has swelled to a record US$700 billion.
India, Thailand, and the Philippines are among the nations that rank high in terms of the sufficiency of reserves to protect currencies, according to Nomura Holdings and Bank of America. Vietnam
