03/13/2015
Global / Economics
Most Asian currencies have clung to the US dollar more than they should have. This is not necessarily, or even generally, a good thing.
Expectations of a rate liftoff in the US, juxtaposed against ongoing or fresh quantitative easing in Japan and Europe, have wrought havoc in global currency markets. Since July, the euro and the Japanese yen have both fallen by some 20% against the greenback. Caught in this veritable tsunami, where have Asia’s currencies swum? Right down the middle, mostly, just as one would have hoped. They’ve fallen against the dollar and risen against the euro and yen. And, in so doing, have maintained a modicum of stability in very choppy seas.
Truth be told, most Asian currencies haven’t swum ‘right’ down the middle. Most have clung more to the US dollar than they should have. Measured against a simple basket of dollars, euros and yen, all of Asia’s currencies, save for the Malaysian ringgit, have appreciated by 2.5%-12% since July. This isn’t necessarily, or even generally, a good thing.
On the bright side – and in a complete reversal from the ‘Taper Tantrums’ of the 2013 second half – India and Indonesia are experiencing inflows, over and above that needed to finance current account deficits. ‘Excess’ inflows are pushing currencies and foreign exchange reserves north. Compared to July, the Indonesian rupiah has appreciated by 2.5% against the tri-currency basket and Indonesia’s reserves have risen by US$4 billion. The Indian rupee is up by 9% and India’s reserves have risen by US$14 billion.
In other countries, however, outflows have been the order of the day and central banks have spent a good portion of their reserves keeping currencies strong. Since July, China’s reserves have fallen by US$150 billion, thanks mainly to ‘keeping up with the Joneses’. The Chinese Yuan has barely fallen against the dollar and has thus appreciated by 11.4% against the tri-currency basket.
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