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The foreign exchange rate of any country is a key determinant of the economic health of that country. As most currencies are globally pegged against the US Dollar, hence the currency of a particular country starts depreciating in times of economic turmoil. The logic: the local currency has lost the trust of the population and more and more people are buying US dollars as a safe haven – sending the economy into a wild goose chase.
Apart from macroeconomic indicators such as interest rates and inflation, the currency exchange rate is one of the most important variables in a country's relative level of economic health. A higher-valued currency makes a country's imports less expensive and its exports more expensive in foreign markets.
When it comes to the US Dollar, it has strengthened visibly in 2021, with the Dollar Index surging 3.27% year-to-date in 2021. Notably, the Dollar index is a measure of the value of the US dollar relative to a basket of currencies of the US’ most significant trading partners.
When it comes to the Asia Pacific (APAC) region, most of the major currencies have depreciated against the greenback this year. Let’s see which currency has moved how much:
Source: Kalkine Research
- Thailand: The Thai Baht has been the worst performer in the region during 2021. The currency has tanked by over 10% against the US Dollar – till now. One obvious reason is the COVID-19 But that should hit others as well? Well, the Thai economy majorly depends on tourism for the much-needed foreign exchange. The pandemic has evaporated it. Thailand had only over 34,000 tourist arrivals as of May this year, compared with over 39 million in 2019.
- Japan: The Japanese Yen is the second worst performer in the region, tanking by 7% on a year-to-date basis against the greenback. But why is it so? You should remember that Yen loves volatility. Traders chase the Japanese yen in periods of high uncertainty as it tends to appreciate when price volatility rises in the market. Since volatility in markets has significantly come down over the last one year, so the Yen is on the losing side of game.
- China: The currency of world’s second largest economy – Chinese Yuan Renminbi – is the only currency in the Asia-Pacific (APAC) region to have notched up gains. It has gained 0.62% on a year-to-date basis against the US dollar. This is probably due to the macroeconomic condition. The Chinese economy was in full swing in early part of this year, while the US was crippled by a deadly second wave of COVID-19 pandemic. So, a strong growth of the Chinese economy and weakness in the American currency due to a coronavirus-induced slowdown in the US played a key role in Yuan’s rise.
