( Beijing, 24th Sept 2020 ) Relying on China as a source of power used to be a good strategy for Asian emerging currency traders.
As the path to recovery from the coronavirus pandemic diverges, this connection is losing traction.
The Chinese economy has rebounded from the epidemic crisis, as shown by data on retail sales and industrial production; but countries including Indonesia and the Philippines are still busy responding to the epidemic.
The 30-day correlation between the six regional currencies and the offshore renminbi has fallen over the past week, during which time the renminbi rose to its highest level in more than a year.
Faced with various unfavorable factors from the tensions between China and the United States to the US presidential election, the two-speed recovery in Asia makes it difficult to predict the fate of the exchange rate in the region. The Asian Development Bank expects that China will avoid economic contraction this year, although developing countries in the region will see their economies shrink for the first time since the early 1960s.
"Given that most of the strength of the renminbi is related to China's economic resilience, and most of the rest of Asia has not replicated it, this indicates that the impact of renminbi appreciation on Asian currencies will still be less obvious," TD Securities' senior emerging market strategist in Singapore Mitul Kotecha (Mitul Kotecha) said. "Heterogeneous factors have become more important for regional currencies."
As China's economy recovers, the offshore renminbi has appreciated by 3.7% this quarter, surpassing all developing Asian counterparts. The South Korean won came in second, rising 3%; while the currencies of Thailand and Indonesia faced some of the biggest economic challenges brought about by the pandemic, and their exchange rates fell.
The imbalance in the Asian recovery is usually reflected in the performance of exchange rates, said Khoon Goh, head of Asian research at ANZ Bank in Singapore. He recently raised his year-end forecast for offshore renminbi from 6.85 yuan to 6.7 US dollars.
"I think this trend will continue, probably until the second half of next year. It will depend on the successful deployment of any vaccine or the success of countries in controlling the epidemic," Horngo said. "These will be the key to let the laggards catch up."
**Info & Image are taken online
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