Asian currencies have been on a sustained fall on the back of multiple headwinds including weak internals, China Yuan Devaluation and broad USD strength. Malaysian Ringgit and Indonesian Rupiah are currently trading at 17 year low levels as both the economies are severely affected by falling commodity prices (particularly crude oil, crude palm oil and coal) as both the economies are commodity export driven economies.
Malaysian Ringgit has depreciated by more than 22% against the USD on a yearly basis and by 3.77% on a weekly basis. The decline was largely due to political uncertainty as the Prime Minister of the country is facing corruption allegations related to his links with debt-ridden state investment firm 1Malaysia Development Berhad (1MDB). Concerns over economic growth, weak crude oil prices and recent act of Yuan devaluation by PBoC has also added momentum to the slide.
Global funds have pulled out about USD 3 billion from Malaysia’s stock market this year. Department of Statistics on Thursday reported that Malaysian GDP growth rate declined by 4.9% in the second quarter against the expectation of 4.5% fall. This was the lowest pace of growth since 4.9% fall seen in the third quarter of 2013.
Indonesian Rupiah (IDR) has declined by 15.3% against the USD on a yearly basis and by 1.78% on a weekly basis. The weekly decline was largely due to Yuan’s devaluation.
Yuan devaluation will hugely impact the Indonesia economy as China is a major export market for the country. Although the global factors are hurting the IDR, Indonesia internal factors have also caused a steep decline of the IDR.
Indonesian economy has a problem of wide current account deficit, high inflation and slowing economic growth. Furthermore, with foreign investors holding nearly 40% of Indonesian government bonds (worth approximately USD 40 billion) the country is highly vulnerable to the sentiments and views of the foreign investors and in turn is highly vulnerable to global uncertainty, particularly when the economic and financial fundamentals are misplaced.
Australian dollar (AUD) and New Zealand Dollar (NZD) on yearly basis have declined by 20.41% and 21.38% and on weekly basis by 0.53% and 1.13% against the USD respectively. Japanese Yen (JPY) and South Korean Won (KRW) on yearly basis have declined by 17.49% and 13.76% and on weekly basis by 0.06% and 1.11% against the USD respectively.
Indian rupee (INR) has remained quite stable despite broad Asian Currency fall as the country’s macros have improved over the last couple of years, which has helped the INR to improve its internal value. INR on yearly basis has depreciated by 6.65% against the USD and on weekly basis it has depreciated by 1.83%.
USD strengthening and falling commodity prices have spurred weakness across global currencies over the last one year. USD Index (DXY), which tracks the movement of the USD against six currencies, has posted a gain of 18.54% on yearly basis. USD strength is largely driven by rising expectations that the Fed will hike interest rates this year. Fed has kept rates at record low levels of 0-0.25% since December 2008 to help the U.S. economy traverse a recovery path. U.S. Labour market data shows continuous addition of jobs on monthly basis and unemployment rate was at 5.3% in July, which is below the average rate of 6.43% from 2002 until 2015.
On a weekly basis USD Index declined by 1.07%, the decline came largely on Wednesday after a high-ranking Federal Reserve official cautioned that the currency interventions by the People’s Bank of China (PBoC) could have widespread ramifications on the global economy, which the market took as a signal that there could be further delay in interest rate hikes by Fed.
China’s Central Bank, the PBoC on 11th August 2015 devalued its tightly controlled currency by slashing its daily reference rate for the currency by a record 1.9%, which triggered Yuan’s biggest one day loss since China unified official and market exchange rates in January 1994. The move from the PBoC came after the monetary authority in China realized that a strong Yuan is putting pressure on exports. China’s exports declined by 8.3% in the month of July, which was far worse than expected after an uptick of 2.8% in the month of June.
USD recovered after Wednesday’s loss post the release of some upbeat U.S. economic data, fuelling optimism over the possibility that the Fed can act to hike interest rates in its September FOMC meet.
U.S. jobless claims rose more than expected last week, but held near the lowest level since November 1973. U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 8th August rose by 5,000 to 274,000 from the previous week’s total of 269,000 and against expectations of a rise of 1,000 to 270,000.
U.S. Commerce Department reported that retail sales increased by 0.6% in the month of July beating the expectations of a gain of 0.5%. Retail sales fell by 0.3% in June. Core retail sales rose by 0.4% in the month of July, which was in line with the expectation.
On Friday, data showed that U.S. industrial production rose 0.6% in the month of July beating the expectations of 0.3% gain. U.S. producer prices rose 0.2% in the month of July beating the expectations of a gain of 0.1%.
Russia Ruble has depreciated the most against the USD and has lead the global currency decline. On yearly basis Ruble has depreciated by 44% and on weekly basis by 1.43%. Russia’s economy is hugely dependent on the export of oil & natural gas as it helps the country to generate half of its national revenue. The decline in crude oil prices and sanctions imposed by US and Euro have damaged the currency value the most. Ruble is now moving in tandem with crude oil prices.