Asia’s 5 Best-Performing Currencies

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Asia’s 5 Best-Performing Currencies

Here we reveal which Asian currencies registered the biggest gains against the US dollar over the past year, and explore the outlook for these currencies in 2018.

Published on 29 January 2018

A recent poll conducted by Reuters revealed that fund managers and analysts remain bullish about the prospects for Asian currencies in 2018. This positive outlook marks a continuation of the trend that was seen last year – with many Asian currencies rising significantly against the US dollar.

The Reuters poll included nine Asian emerging market currencies: the Indian rupee, the Chinese yuan, the South Korean won, the Malaysian ringgit, the Philippine peso, the Singapore dollar, the Indonesian rupiah, the Taiwan dollar, and the Thai baht.

Here we take a look at the top five performing Asian currencies over the past year, and provide an analysis to determine whether these currencies can continue to appreciate against the US dollar in 2018.

1. Malaysian ringgit

Currencies, Malaysian Ringgit, Korean won, Thai baht, Taiwan dollar, Singapore dollar, US dollar

Exchange rate on 1 January 2017: US$1 = 4.486
Rate on 26 January 2018 = 3.871
Appreciation against the US$: 15.9%

The International Monetary Fund recently upgraded Malaysia’s gross domestic product (GDP) growth projections for 2017 from 4.5% to 6%. The World Bank estimates that the country will record a 5.8% increase in its GDP for the year.

Higher oil prices have also helped the economy, as has the increased demand for products manufactured by Malaysia’s electronics sector. Additionally, the country has attracted several high-value projects from overseas investors.

In February 2017, Saudi Aramco announced that it planned to invest US$7 billion in the Petronas Refinery and Petrochemical Integrated Development project in Johor. This is Aramco’s largest downstream investment outside its home country.

Alibaba has announced plans to build a Digital Free Trade Zone in Malaysia. HSBC has decided to construct its regional headquarters at the Tun Razak Exchange, a 70-acre development in the heart of Kuala Lumpur.

These developments and the continued expansion of the economy indicate that the ringgit could continue to appreciate in 2018. However, Malaysia’s upcoming general election – due to be held by mid-2018 – could have an unforeseen impact on the value of the country’s currency.

2. Korean won

Currencies, Malaysian Ringgit, Korean won, Thai baht, Taiwan dollar, Singapore dollar, US dollar

Exchange rate on 1 January 2017: US$1 = 1,203.93
Rate on 26 January 2018 = 1,064.66
Appreciation against the US$: 13.1%

A war in the Korean Peninsula could have a disastrous effect on the won’s exchange rate. But recent developments suggest that North Korea is toning down its belligerent attitude and may be open to negotiations regarding its nuclear programme.

Kim Yumi, a market strategist at Kiwoom Securities in Seoul, says, “The North Korea risk should now be considered a neutral variable whereas it was seen as a factor. Investors can set aside the North Korea risk for now.”

In November last year, the Bank of Korea raised rates for the first time in six years. This helped to boost the won’s prospects. Analysts project that 2018 will see increased demand for Korean assets as the country’s economy continues to expand. In 2017, GDP is estimated to have increased by 3.2%. Growth is expected to be marginally lower at 3% this year.

3. Thai baht

Currencies, Malaysian Ringgit, Korean won, Thai baht, Taiwan dollar, Singapore dollar, US dollar

Exchange rate on 1 January 2017: US$1 = 35.82
Rate on 26 January 2018 = 31.35
Appreciation against the US$: 14.3%

The strong performance of the baht in 2017 prompted the Bank of Thailand to initiate measures to curb speculation in the nation’s currency. In August, the central bank asked commercial banks to report “… unusually high volume of transfers between non-resident baht accounts which may relate to baht speculation.”

Thailand’s exports grew by 10% in 2017. This was a remarkable achievement in view of the fact that the country had seen a decline in export volumes for the last three years. In 2018, a further growth of 5.5% is expected.

However, a strong baht may serve to reduce demand for Thai goods in the international market. According to the Thai National Shippers’ Council, a trade body that represents exporters, the baht should be valued at 33 to 34 against the US dollar. At its current level of 31.86, it may hamper the country’s exports.

4. Taiwan dollar

Currencies, Malaysian Ringgit, Korean won, Thai baht, Taiwan dollar, Singapore dollar, US dollar

Exchange rate on 1 January 2017: US$1 = 32.365
Rate on 26 January 2018 = 29.089
Appreciation against the US$: 11.3%

Taiwan received US$8.6 billion in net fund inflows from foreign institutional investors in 2017, and the country’s currency rose by about 8% against the US dollar last year. This is the most that the Taiwan dollar has appreciated against the US dollar in a single year since 1989.

The country’s economy and exports have both been growing steadily. In 2017, exports totalled US$317 billion – an increase of 13% from the previous year. In 2018, growth is expected to slow down to about 4% to 5%. Taiwan’s GDP growth in 2018 is expected to be 2.29% compared to 2.58% in the previous year.

The country’s central bank has taken steps to curb the appreciation of the Taiwan dollar. However, it has not met with much success with the currency rising by over 11% in the last 13 months.

5. Singapore dollar

Currencies, Malaysian Ringgit, Korean won, Thai baht, Taiwan dollar, Singapore dollar, US dollar

Exchange rate on 1 January 2017: US$1 = 1.4507
Rate on 26 January 2018 = 1.3077
Appreciation against the US$: 10.9%

In 2017, Singapore’s economy made a strong turnaround. After growing by 2% in 2016, it expanded by 3.5% in the next year. The rise in GDP was largely fuelled by the manufacturing sector, which registered a 6.2% growth in the last quarter of the year. In the third quarter, the output from manufacturing activity soared by a massive 19.2% on a year-on-year basis.

Non-oil domestic exports increased by 9.2% in 2017 compared to the previous year.

With the economy almost doubling its pace of growth and export volumes shooting past government estimates, the Singapore dollar has staged a strong recovery. However, this trend could reverse soon as the economy is unlikely to keep up the pace of growth that it maintained in 2017.

Philip Wee, senior currency strategist at DBS Bank, expects the Singapore dollar to depreciate in the first three quarters of 2018, but expects it to stay in the 1.33 to 1.45 range.

The bottom line

In 2017, the US dollar fell against numerous Asian currencies, and the level of decline was the greatest in a decade. Will the US dollar continue to depreciate in 2018?

It’s quite possible. The dollar index, which is the measure of the value of the US dollar relative to the currencies of America’s trading partners, is currently at a level of 90.44. At the beginning of 2017, it stood at 103.2. It seems likely that this trend could continue into 2018.

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