All 10 major Asian currencies are forecast by strategists to fall against the US dollar for a third year. They blame China.
Indonesia's rupiah, South Korea's won and the Singapore dollar are projected to decline the most next year, with India's rupee seen depreciating the least.
While the US Federal Reserve on Wednesday indicated four interest-rate increases next year, Taiwan cut interest rates on Thursday and economists are forecasting reductions in China, South Korea, Thailand, India and Indonesia to spur growth.
China's slowdown is hurting Asian nations with strong trade linkages to the world's second-biggest economy, and the Aug 11 devaluation of the yuan clouded the outlook for a currency that had been a source of stability in Asia during past crises. Goldman Sachs and JPMorgan Chase say Chinese renminbi weakness will infect exchange rates in the region and across emerging markets.
"The Chinese yuan trumps the US dollar so far in terms of its impact on Asian currencies," said Mr Claudio Piron, co-head of Asian currency and rates strategy at Bank of America Merrill Lynch in Singapore. "Asia has a heightened sensitivity to the yuan, which represents the hub of the region's supply chain to the rest of the world."
The yuan weakened 2 per cent this month in Hong Kong's offshore market, the most in Asia after the won, and 1.3 per cent in Shanghai after the People's Bank of China (PBOC) allowed its decline versus the dollar to accelerate. Restrictions on trading are being lifted as the International Monetary Fund adds the currency to its reserve basket.
The PBOC has cut the yuan's reference rate by 1.3 per cent this month. Yesterday's level of 6.4811 versus the dollar was the weakest since June 2011. A measure of swings in the currency reached the highest since August on Dec 14, after an arm of the central bank unveiled a new yuan index comprising 13 currencies, a development seen as setting the stage for a further depreciation.
Indexes compiled by the Bank for International Settlements show the yuan is still the strongest among 24 emerging-market currencies in trade-weighted terms after adjusting for inflation, hurting China's export-competitiveness.
"China is actually gaining some competitiveness on a trade- weighted basis" with help from the weaker fixing, said Mr Craig Chan, the Singapore-based head of foreign exchange strategy for Asia ex-Japan at Nomura Holdings. With this week's policy tightening by the Fed already priced in, going forward, Asian currencies will be more sensitive to moves in the yuan, he said.
Asia's largest economy accounts for 34.3 per cent of South Korea's total trade, according to the Japanese brokerage, followed by the Philippines at 25 per cent and Thailand, Malaysia and Taiwan at about 22 per cent each. Some 19 per cent of Indonesia's trade is with China.