Asian currencies have weakened relentlessly since the beginning of April 2018. The never ending trade war between US and China, and the global risk aversion associated with it were the primary drivers. Initially, the weakness was lead by the Indian Rupee (Orange dotted line) and South Korean Won (Green solid line). Chinese Yuan (Purple solid line) also weakened as an obvious consequence.
Of late, something interesting has started to develop. Since the beginning of July 2018, Yuan continues to weaken while the other Asian currencies have stabilized. The other Asian currencies have not made gains, but they have not weakened either – contrary to the persisting weakness in Yuan. This is tending to indicate that trade war related developments will punish the Yuan but spare the other Asian currencies.
Have a look at the rebased chart below. It shows percentage change in Asian currencies against the dollar since 1 April 2018.
Yuan has weakened 8.76% while Thai Baht (Grey solid line) plummeted 7.17%. The other Asian currencies – South Korean Won (Green solid line), Indian Rupee (Orange dotted line), Malaysian Ringgitt (Yellow solid line) and Indonesian Rupiah (Blue solid line) have weakened around 5%. Singapore Dollar (Red solid line) has been the best performer, declining 3.83% only.
My sense is that the ongoing trade war will continue to pressurize the Asian currencies. Yuan will continue to weaken but its correlated impact on other Asian currencies will reduce. Moreover, if the trade war continues for a longer time, markets will start diluting the factor and look at other influences for its theatrics.