Asian Currencies: Which Are The Strongest?

Asian Currencies: Which Are The Strongest?

By Reid Kirchenbauer of InvestAsian
Saturday, February 7, 2015 10:52 AM EDT  

Asia is home to more currencies than any other continent on the planet and because of this, there are a wide variety of options for forex traders. Today, we’ll go over just a few of the region’s currencies while looking at their past performance and future prospects.

The sentiment toward most Asian currencies is bearish – but some look better than others. The Thai Baht, for example, has been surprisingly strong over the past several months. In contrast, the Malaysian Ringgit has tanked.

While we’re on the topic, let’s examine why Thailand and Malaysia, two neighboring countries with similarly sized economies, each have a currency that has each performed in a completely different way from the other.

The Thai Baht and Malaysian Ringgit


The reason for the Ringgit’s poor performance is rather simple. Malaysia’s economy, even if not completely reliant on, has a large dependence on the oil and gas industry.

In fact, the country is the largest producer of palm oil in the world and Petronas (PNADF), its national oil company, pays around 40% of Malaysia’s federal budget through its taxes.
The Ringgit can be considered an “oil-based currency”. As prices fall below US$50 a barrel, the value of exports decline, Malaysia’s tax-base is weakened, the current account surplus narrows, and the Ringgit underperforms as a result.

Thailand’s case is a bit more complicated. The country suffered a military coup in early 2014, but while this normally would frighten investors and lead to a lower baht, Thailand’s currency has instead been one of Asia’s best performing.

The reasons for this include everything from Thailand’s large tourism industry which has suffered far less than oil prices have, to weak export data over the past several years.

While the latter is not a good thing for the Thai economy, it has helped the Baht perform better than the currencies of some of the more export-dependent countries in Southeast Asia – most of which suffered a large spike of falling exports in 2014, rather than Thailand’s gradual decline.




The Japanese Yen
The fact that the Japanese Yen would depreciate has been no secret. As early as 2012, the Bank of Japan (BoJ) announced an inflation target of 2% – a goal that economists found would require the Yen to be devalued by 15% a year, and implies a policy of an increasingly weak currency.
But forex traders have been (often pleasantly) surprised to see the Yen decline far more than intended. Hovering around 75 to the dollar for most of 2012, the currency saw lows of over 120 to the dollar in late 2014.

It was intended for a lower yen to boost Japanese exports, and it has worked to an extent. In December of 2014, the Japanese trade deficit was at its lowest level in 18 months.
Where will the yen go from here? It largely depends on the BoJ’s next move. For what it’s worth, inflation in Japan is still only at 0.5% and far from where the country’s central bank seems to want it.
The Chinese Yuan
The Chinese Yuan has made more headlines than any other Asian currency. This is to be expected since Beijing’s plans for the Yuan may shape the very foundation of the world economy.
China has made it very obvious that they want the Yuan to be a major trading currency, and has taken several steps to make this goal a reality.

Perhaps the most important of these steps in gathering international support. Since 2013, China has made a huge number of partnership agreements with countries such as Singapore, the United Kingdom, Australia, Russia and others.

These deals range from currency swap agreements with over a dozen countries, to even bonds in London and stocks in Singapore that are denominated in Yuan.

All of this has helped propel the Chinese currency to the fifth most traded in the world.
The Yuan has appreciated steadily against the US Dollar in recent years. This is partially due to pressure from the United States and concerns that Beijing has manipulated its value in order to drive export growth.

However, the trend has reversed and the Yuan is falling against the Dollar once more, along with almost every other currency in Asia.
The future direction of the Yuan depends on if the Chinese government wants to let market forces dictate the Yuan’s value or intervene to help export growth, which has weakened dramatically.

What About the Others?
It’s difficult to go over every currency in Asia, of which there are over 70, in a single article. But here are some brief highlights of some of the region’s more prominent ones.

The Indian Rupee is one of the few currencies to have appreciated against the dollar since 2014, helped along by a faster growing economy and the expectation that India’s new, business-friendly government will support growth.

The Singapore Dollar has fallen by over 10% against the dollar in the past year. Investors remain concerned about a potential property bubble and weak manufacturing data.
The Indonesian Rupiah continues its long decline. The currency has depreciated against the US Dollar rapidly since around 2011, and the pace has neither slowed nor accelerated.

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