Currencies in Asia took a beating recently after the talks of U.S. Federal government tapering its massive spur program and analysts speculate the battering to continue as drivers that helped the currencies advance are now facing pressure.
Funds flowing out of Asia on worries about the relaxing of asset purchasing by the Fed and risk re-assessment, the falling yen in Japan and fading current-account shortages are some reasons that are expected to weaken regional currencies in the coming months.
The advancing currencies in Asia rose in appeal after the global financial crunch of 2008 due to its favorable position that led to upgrading of the credit score. This remained sober compared to falling grades in the U.S., Japan and Europe.
Most of the big rated stories in Asia have already occurred, and the qualms about the financial disproportions from the post global financial crisis-fueled investment roar in China are currently pondering on sovereign risk assessments. Last week’s concerns about the liquidity crisis in China went loud after an unsuccessful bond auction and after a spike in the lending rate by the interbank there.
In the meantime, the tail risks that could have caused damage to some growing economies like the Grexit or the fiscal cliff in U.S. have now subsided.
Ground rules of EM currencies are confronted
The currencies in Asia that appeared most vulnerable currently due to the inflow of hot money out of the region come from countries that operate a current account scarcity. This primarily entails the Indonesian rupiah, Indian rupee and Australian dollar.
The big question is that do they look appealing enough to fund current account arrears that are enormous, presently India does not, Indonesia does not and even Australia does not. Recently the rupee in India plunged at its record low at 58.98 per dollar. The AUD in Australia has plummeted nearly 10% from the year’s high of about USD1.059, while the central bank in Indonesia surprised markets with a hike in the interest rate to support the depreciating rupiah, which hit a four year low against the USD.