Asian Currencies on the Move

Posted April 09, 2009

The euro weakened as the European recession showed signs it is still deepening. The Taiwan and South Korean won rose as Asian countries become more aggressive about slowing GDP declines.


The Asian countries are on the move when it comes to dealing with the recessions in their respective countries.  China is giving Asian countries support in the way of establishing new currency trade agreements which exclude the US dollar. 

China has been promoting the yuan as the country makes it first tentative steps toward establishing the yuan as an international currency.  China has swap agreements with 6 countries (5 Asian and 1 Latin American) and plans on establishing more.  Analysts agree that currently there is no fear of the US dollar being scrapped as the global base currency, but the Chinese moves in the financial markets are establishing a new direction which will play out over time.

Hong Kong is the first non-mainland China city which is going to start settling trades in yuan in addition to the pegged US dollar.  The goal is reduce dependence on US dollar fluctuations and avoid a future economic crisis such as the one currently in full swing.  Hong Kong currently allows the Hong Kong dollar to trade 5 cents up or down from the US dollar value.  The yuan has held firm against the US dollar and is currently at 6.8354 yuan per dollar.

The Taiwan dollar strengthened to NT$33.780 against the US dollar.  The increase was largely due to the signs Japan’s stimulus programs are beginning to work.  Japan reported yesterday that machinery orders in February rose (much to their surprise).  The news led the Taiwan dollar to reverse a downward trend.

The Central Bank of the Republic of China made a statement the Taiwan currency is “relatively stable”.  Taiwan has experienced a severe recession with the 4th quarter 2008 GDP numbers showing an 8.4% contraction.

The South Korean won was the currency with the best showing among Asian countries though.  It strengthened to 1,341.70 won per US dollars. The won had declined over the last two days.  South Korea recently sold $1.5 billion in notes as overseas debt which it has not done since 2006.  The central bank of South Korea also decided to keep the country’s benchmark interest rate the same.

The euro is trying to hold on as coming German data is expected to show the European economy is deepening.  The euro weakened to 132.50 yen per euro and to $1.3265 when paired with the US dollar.  It is anticipated the European Central Bank will lower benchmark interest rates again if the recession continues to show no signs of reversing.  The German data indicated a consecutive 6-month decline in industrial output.

The yen became the safe haven asset yesterday in light of equity market volatility.  The US corporations will be issuing earnings reports over the next 2 weeks inspiring investor nervousness once again.  The yen strengthened against the US dollar to 100.03 yen per dollar and to 146.92 yen per UK pound.

The Australian and New Zealand dollars advanced against the US dollar and yen.  The Aussies strengthened to 71.10 US cents and to 71.09 yen.  The New Zealand dollar strengthened to 58.06 US cents and to 58.10 yen.

Currency markets are showing some signs of normalizing with the yen and US dollar moving in opposition to equity market trends.  This is a good indicator though it is obvious the global recession is far from over.