The China-US trade spat, higher oil prices, a hawkish Fed and an appreciating dollar have had almost all emerging market currencies heading for cover. But what is it about the Philippine peso, Indian rupee and the Indonesian rupiah that has soured investor appetite more than others?
Emerging market currencies have been rattled in 2018 as a series of events including a hawkish Fed and appreciating dollar, the China-US trade spat and higher oil prices have had almost all regional currencies heading for cover amid increased risk-aversion and capital flight.
But some Asian currencies have been hit harder than others with the Indian rupee (INR), Indonesian rupiah (IDR) and the Philippine peso (PHP) all testing multi-year (in some cases historical) weakness in tandem with heightened USD demand from corporates.
And although the risk-off scenario has spared no one, these three currencies appear to have taken the brunt of the impact. So what is it about these three currencies that has soured investor appetite more than others?
A falling trade surplus is dragging the current account surplus lower this year, but not by a lot. Our estimate for a current surplus at 7% of GDP in 2018 is still strong enough to sustain the currency's (THB) outperformance through the rest of the year. We maintain our end-2018 USD/THB forecast of 33.0
Confounding the consensus of a swing back to surplus, the trade balance persisted in deficit for a second consecutive month in August. Not only that, but the $588 million deficit was also wider than the $516 million gap seen in July. The year-to-August balance was still in surplus at $2.4 billion but significantly narrower than the $9.8 billion surplus in the same period last year.
Exports rose by 6.7% YoY, better than expected but a slowdown from 8.3% in July, mainly due to the high base-year effect. Automobiles, electronics and electrical equipment, and plastic products have been the main export drivers this year and they remained in play in August. Imports surged by 22.8%, more than double the consensus estimate and the July pace with continued support from fuel products.
The base-year effect will become more favourable for imports in coming months, but not so much for exports. In addition, the trade war overhang on exports and firmer crude oil price underpinning imports suggest the trade gap will widen further through the rest of the year. As things stand, 2018 looks to be the first year in four with an annual trade deficit on the order of $1.2 billion, down from a $15 billion surplus in 2017.
General market tone: Slight risk on. Investors continued to drive the rally last Friday, with the fears of the full-blown trade war fading from recent memories. Traders will likely remain upbeat going into the week although the upcoming Fed meeting and results of the OPEC summit may cap the rally.
You can't negotiate if you aren't round the table - but then why would you come to the table if you see no possibility of compromise? The US-China trade war has no clear end in sight