Currencies in the Asia-Pacific region made sweeping gains against the euro on Thursday night after the European Central Bank announced a cautious approach to the removal of monetary stimulus.
Further to a zero percent interest rate, the ECB is currently buying €60 billion worth of assets (bonds) each month, with the goal of keeping eurozone borrowing rates extremely low.
The week ahead should be an interesting one for Asian financial markets, with the highlights being China’s 19th National Congress, the latest numbers for Chinese economic growth, the Bank of Korea’s monetary policy meeting and Japanese trade data.
Further to that, and to the events outlined below, investors should look with care to Federal Reserve speakers on Sunday and Wednesday (Asian time zones) and to Tuesday’s US data for industrial production, all of which may influence risk appetite and, of course, the dollar side of Asian FX pairs.
Currencies in Asia have begun the week slowly and also with contrasting performances against the FX majors.
Against the dollar, while all of Asia’s ten most active currencies have fallen marginally on Monday morning, many hold slight gains or remain unchanged against the euro. Little movement has been seen against the yen.
Scotiabank analyst Qi Gao pointed on Wednesday to “solid fundamentals” and Thailand’s large current account surplus as reasons for the Thai baht to continue its reign as Asia’s best performing currency.
Thailand’s current account surplus is now an impressive 11.5% of GDP and the country’s economy is growing at its fastest pace since 2013, at 3.7%.
A better than expected Chinese manufacturing PMI failed to lift the yuan or Australian dollar on Thursday morning against a US dollar determined to end the month in the green.
The Chinese PMI for the manufacturing sector came in at 51.7 for August, slightly ahead of the market forecast of 51.3 and July’s reading of 51.4.
Asia’s best performing currency, the Thai baht, isn’t done yet, said both Scotiabank and Standard Chartered in recent days.
USD/THB, which has fallen (the baht has risen) 7% this year, is set for a further 7% fall to levels around ฿31 in 2018 according to Standard Chartered, from Monday’s exchange rate of ฿33.25.
Most Asian currencies ended Wednesday higher against the dollar, albeit on a rather unspectacular day of trading. With a few exceptions, markets traded quietly ahead of the Jackson Hole symposium (24-26 August) at which Fed Chairwoman Janet Yellen and ECB President Mario Draghi might give important updates on monetary policy.
The star of the day in Asia was without doubt the Korean won.
Within the past fortnight, Thailand’s baht has overtaken the Korean won to become Asia’s best performing currency. The baht’s outperformance will, however, be short-lived according to Thailand’s finance minister Apisak Tantivorawong.
Even after some small measure of stability in the dollar in recent days, the baht remains up almost 8% against the world’s reserve currency and trades currently at levels not consistently seen since May 2015.