Last updated May 23rd, 2019.

 

Asia is home to more currencies than any other continent on the planet. Because of this, there are a wide number of options for Forex traders.

We’ll go over several of the region’s best (and weakest) currencies while judging their previous performance and future prospects.

The sentiment toward most Asian currencies is generally bearish. But some are looking better than others. The Thai baht, for example, has been surprisingly strong over the past few years and is certainly one of Asia’s top currencies. In contrast, the Malaysian ringgit recently tanked.

While we’re on the topic, let’s examine why Thailand and Malaysia, two neighboring countries with similarly sized economies, each have a currency that performed in a completely different way from the other.

 

Thai Baht vs. Malaysian Ringgit: Polar Opposites

The reason for the ringgit’s poor performance is rather simple. Malaysia’s economy, even if it’s not purely reliant on, is highly dependent on the oil and gas industry.

In fact, the country is the world’s biggest producer of palm oil. Petronas, Malaysia’s national oil company, pays around 40% of the entire federal budget through its taxes.

Malaysia’s ringgit is considered an “oil-based currency”. As prices fall below US$60 a barrel, the value of exports decline and the nation’s tax-base is severely weakened. This all happens while the current account surplus narrows. So the ringgit underperforms as a result.

Thailand’s case is a bit more complicated – they had a military coup back in 2014. Yet while this event normally would frighten investors and lead to a weaker baht, Thailand’s currency instead is one of Asia’s best performing.

Several factors have caused the baht’s outperformance, even compared to regional mainstays like the Singapore dollar and Japanese yen. Those reasons include Thailand’s massive tourism industry which suffered far less than oil prices have, to generally weaker export numbers.

The latter is not a positive thing for the Thai economy. Regardless, it helped the baht perform better than currencies of more export-dependent countries in Asia. Most of them saw a large spike in falling exports rather than Thailand’s gradual decline.

 

Japanese Yen: Where Will BoJ Take It?

It wasn’t a secret that the Japanese yen would depreciate. As early as 2012, the Bank of Japan (BoJ) announced an inflation target of 2%. This is a goal economists say would require the yen to be devalued by 15% a year. It implies a policy of quantitative easing.

But Forex traders were (sometimes pleasantly) surprised to see the yen decline far more than intended. Hovering around 75 to the dollar for most of 2012, the currency saw its recent lows which surpassed 120 to the dollar in late 2015.

Japan and its government intended for a lower yen to boost Japanese exports, and it worked to an extent. The Japanese trade deficit reached its lowest level in 18 months after the policy was implemented in 2014.

Where will the yen go from here? It largely depends on the BoJ’s next move. For what it’s worth, inflation in Japan is still only at 0.7%. That’s far from where the country’s central bank wants it.

 

Chinese Yuan: Cautiously Optimistic

The Chinese yuan makes more headlines than all probably every other Asian currency. That’s expected because Beijing’s yuan plans could shape the very foundation of our global economy.

China makes it very obvious that they want the yuan to be a major trading currency. Therefore, Beijing has taken numerous steps to make this goal a reality.

Perhaps the most important of these steps is gathering international support. Ever since 2013, China has made a huge number of yuan partnership agreements with countries such Australia, Singapore, the United Kingdom, Russia and many others.

These deals range from currency swap agreements with over a dozen countries, to even bonds in London and stocks in Singapore denominated in Yuan. All of that helped propel the Chinese currency to the fifth most traded in the world.

China’s yuan has (generally) appreciated against the US Dollar this decade. A stronger yuan is partially due to pressure from the United States and concerns about Beijing manipulating its currency’s value to drive export growth.

However, the trend reversed and the yuan is falling against the dollar once more – along with almost every other currency in Asia. Of course, a trade war between the US and China would be the main reason for recent yuan depreciation.

The future direction of the yuan/renminbi depends. Will the Chinese government let market forces dictate their currency’s value, or will they intervene in the yuan to aid exports?

 

During the past 20 years, China’s yuan steadily appreciated against the dollar… until very recently.

What About Other Top Asian Currencies?

It’s difficult to cover all Asian currencies in a single article – there are over 70 of them. Here are a few brief highlights of some of the region’s more prominent ones though.

The Indian rupee is one of few currencies that appreciated against the dollar since 2014. It was helped along by a faster growing Indian economy and expectations of a new, business-friendly government that would support growth.

Unfortunately, much optimism surrounding the Indian economy was based on false pretense. India’s economy isn’t performing better compared to the earlier part of this decade… and the rupee is down approximately 30% in terms of USD since then.

I don’t predict the rupee’s rather dire situation will improve. If anything, this currency will likely get cheaper before appreciating once India starts becoming a major economic power around the year 2030.

The Singapore Dollar declined nearly 10% against the US dollar the past year. Investors remain concerned about a potential property bubble and weak manufacturing data in the country.

Yet the Singapore Dollar’s reputation as a safe haven, combined with the city state’s status as a top Asian financial hub, should help maintain healthy demand for the currency. The Singapore Dollar will probably keep steady against other top international currencies.

Meanwhile, the Indonesian Rupiah continues its lengthy decline. It depreciated against the US Dollar rapidly since around 2011 and the pace has not really slowed or accelerated. The same is true for nearby frontier market currencies in Asia like the Vietnamese Dong.

 

What Are the Strongest Currencies in Asia?

With all that said, you might still be asking: what are the best Asian currencies? It’s indeed the topic of this article.

The Singapore dollar and Japanese yen are the most liquid and stable currencies in Asia. If one of your main goals is diversification, these two currencies will help you limit any downside risk. Thailand’s Baht and the Philippine Peso are strong too – especially for exotic currencies.

On the other hand, currencies such as the Malaysian ringgit and Chinese yuan are appreciation plays. Those two currencies are riskier yet they enjoy higher upside potential.

I recommend staying away from the Vietnamese dong and Indonesian rupiah, among others in Southeast Asia, at all costs. They have a multi-decade long trend of depreciation against the US dollar. Buying those currencies are almost a sure bet that you’ll lose money.

 

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's an international stock trader and property investor based in Thailand, Cambodia, and several other places. Reid manages the world's first and only frontier market real estate fund and has been featured in publications such as Forbes, Property Report, the South China Morning Post, and Seeking Alpha. You can download his free investment guide by clicking here.

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