Recently, many Asian currencies have been experiencing significant volatility.
First of all, since April, the exchange rate of the yen, Thai baht, Indonesian rupiah and other currencies has plummeted collectively under the heavy fall of the US dollar. The yen even fell below the 160 mark against the dollar at one point, hitting a 34-year low.
Subsequently, many governments urgently took action to "rescue foreign exchange", and the exchange rate of the yen, South Korean won and other currencies against the US dollar rebounded, and a "currency defense war" began.
What's next for Asian currencies? How will the renminbi respond in this round of shocks?
Data map: Japanese yen.
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The strong US dollar "penetrated" many Asian currencies
"It's been a long time since I've been so 'cost-effective' to exchange yen, and now I can spend 50 yuan less for every 10,000 yen compared to the beginning of the year. My living expenses have also been reduced by about 10%. Xiao Lu, who studied in Japan, told China News Finance.
Not only the yen, but since April, many Asian currencies have been caught in a "depreciation storm" against the US dollar. As the U.S. dollar index rose from around 104 and regained its footing above the 106 mark, the Indian rupee, Indonesian rupiah, South Korean won, and Thai baht fell sharply against the U.S. dollar, falling below the 83.5, 16,000, 1,400, and 37 marks in mid-to-late April.
The leading factor behind the "ice and fire" staged by Asian currencies and the US dollar is the strength of the US dollar.
Mitul Kotecha, head of Asia FX and emerging markets macro strategy at Barclays, noted in his analysis that "most Asian currencies are having to succumb to the strength of the US dollar." The U.S. dollar broadly strengthened in the currency market, driven by rising U.S. Treasury yields and rising risk aversion in the market, leading to a decline in Asian currencies. ”
"In addition, U.S. inflation and employment data for March exceeded market expectations, the Federal Reserve delayed interest rate cuts and will keep interest rates high for longer, and the strengthening of the U.S. dollar increased the pressure on capital outflows from emerging economies, a change that exacerbated the risk of currency depreciation in emerging economies such as the Asia-Pacific region." Wang Youxin, a senior researcher at the Bank of China Research Institute, said in an interview with Zhongxin Finance.
In addition to the external factor of the US dollar, the weak economic growth of some Asia-Pacific countries is also difficult to provide internal support for the stability of local currencies.
Wang Youxin mentioned that in the context of the weak global economic recovery and increasing uncertainty, the growth pressure of emerging economies in the Asia-Pacific region is becoming prominent. At the same time, some Asia-Pacific countries have seen a decline in export trade since last year, with trade surpluses and foreign exchange earnings declining, putting pressure on the depreciation of their currencies.
The exchange rate trend of the US dollar against the Japanese yen in recent days. Source: Wind
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Many Asian countries take action to "save foreign exchange"
Money and the economy are inextricably linked. At a time when many Asian currencies have been hit by a huge earthquake, concerns about the Asian economy are also fermenting.
"Exchange rate depreciation and capital outflow will not only raise import prices, but also put pressure on domestic liquidity and credit financing, increasing the risk of economic downturn," Wang Youxin said, especially for countries like Japan that rely heavily on imports, the negative impact of currency depreciation should not be underestimated.
Under the sense of crisis of the currency crash, some Asian countries have realized the grim situation and have begun to "rescue foreign exchange".
For example, the South Korean government said that it is highly vigilant about the exchange rate market. Indonesia's central bank even went straight to the game, urgently raising interest rates and buying local currency to intervene in the exchange rate. Although the Japanese authorities have not explicitly stated that they will take action, according to several Japanese media reports, the government has intervened in the market for a total of about 8 trillion yen (about 375.4 billion yuan) on April 29 and May 2.
Although most Asian currencies are still trading at low levels against the US dollar, the performance of currencies such as the yen, South Korean won, and Thai baht has rebounded.
For example, after hitting a new low of 160, the yen rebounded to around 153 against the dollar on May 6. The won rose to around 1359, and the baht also retreated slightly to within 37.
Data map: RMB and US dollars. Photo by Li Jinlei
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How the renminbi responds
Although there has been some improvement, in the opinion of experts, it is still unknown what the final effect of the "foreign exchange rescue" of Asian countries will be, and Asian currencies may continue the "roller coaster" shock trend.
Taking the yen as an example, Wei Wei, assistant director and chief strategic analyst of Ping An Securities Research Institute, believes that the intervention of the Japanese authorities is effective in the short term, but it will not promote the reversal of the yen trend, but more to slow down the depreciation of the yen, and the key to this round of yen trend lies in the monetary policy shift of the Bank of Japan and the US dollar.
Goldman Sachs analyst Danny Suwanapruti also believes that the theme that dominates the Asian macro market is the Fed's policy path and its impact on the US benchmark interest rate and the US dollar.
It is worth mentioning that during the current round of Asian currency shocks, the RMB exchange rate performed exceptionally solidly and did not fluctuate significantly.
Wang Youxin said that there are internal support factors for the stability of the RMB currency.
"On the one hand, China's economic recovery has accelerated, and consumption and investment have grown steadily, which to a certain extent hedges the fluctuations brought by external factors to the RMB exchange rate. On the other hand, China has sufficient foreign exchange reserves and a well-developed system of policy tools, which makes it capable of maintaining the stability of the RMB exchange rate. Wang Youxin said.
In April this year, Zhu Hexin, deputy governor of the People's Bank of China and director of the State Administration of Foreign Exchange, said at a press conference of the State Council New Office that the goal and determination of the People's Bank of China and the foreign exchange bureau to maintain the basic stability of the RMB exchange rate will not change, and the RMB exchange rate has the foundation and conditions to maintain basic stability.
In addition, China News Finance has noticed that as the exchange rate of currencies such as the yen has fallen to a low point, some investors are turning their attention to foreign exchange wealth management, such as buying currencies at low levels through bank foreign exchange settlement and sales. In this regard, industry insiders said that this wave of Asian currency exchange rate changes may not have "bottomed out", and investors need to fully consider the risk of market volatility and the acceptance of potential income levels, and invest cautiously.
Source: China News Network