The weakening of Asian currencies is bringing key levels into focus as traders prepare for further dollar gains, fueled by expectations surrounding Donald Trump's economic policies. The Bloomberg Asia Dollar Index is on track for its third consecutive monthly loss, with traders betting that Trump’s low-tax and high-tariff approach will increase inflation and boost the dollar. According to the latest data from the Commodity Futures Trading Commission, both hedge funds and asset managers have increased their long positions in the dollar, signaling a bearish outlook for Asian currencies.

Currency strategist Christopher Wong from Oversea-Chinese Banking Corp. in Singapore highlighted that the outlook for currencies in Asia, excluding Japan, is broadly tilted towards the upside for the dollar. While there may be a short-term pullback in the first quarter due to the Federal Reserve's interest rate cuts, the dollar is likely to remain strong as it begins the year.

Key levels traders are watching include the onshore yuan, which is trading near a one-year low due to growing concerns over US tariffs and expectations that the People’s Bank of China (PBOC) may cut interest rates further to stabilize the economy. Traders expect China to allow a weaker yuan to mitigate the impact of tariffs. Despite the PBOC’s efforts to manage the currency by setting the yuan fixing around 7.2 per dollar, the gap between the fixing and market estimates has widened, signaling increasing bearish sentiment toward the yuan. A breach of 7.3 per dollar would bring the September 2023 low of 7.3510 into focus.