Asian currencies remain resilient

Asian currencies have continued to hold up pretty well over the past few weeks despite the turmoil in EM currency markets. Since the start of August, the Korean won and the Thai baht have actually appreciated against the US dollar, while the Indian rupee is the only Asian currency to have fallen by more than 2%. In contrast, the Turkish lira and the Argentine peso have fallen by 25% and 18% respectively against the greenback, while the currencies of Brazil, South Africa and Russia are down by 7-10%. The resilience reflects the fact that most countries in the region run current account surpluses, making them less vulnerable to contagion from the crisis in Turkey. India and Indonesia do still run deficits, but they are much smaller than they were a few years ago. With Treasury yields in the US set to rise further over the coming months and fears of a trade war likely to continue weighing on sentiment, we think Asian currencies will remain under downward pressure. But given the region’s low external vulnerabilities, further falls are likely to be fairly small.