Indian, Chinese exports most likely to be harmed by strong currency

trade deficitExports from India and China are the most likely to be harmed by currency strength — or boosted by weakness — among Asian economies, underscoring the two giant’s sensitivity to the swings of foreign exchange markets. An analysis by Bloomberg Economics’ Tamara Henderson shows the historical link between exports and exchange rates was the highest in India in the decade through 2017, followed by China, Malaysia and Japan. Singapore was a notable outlier — exports actually do better when its currency firms up. For a region that’s heavily dependent on exports, the relationship to currency performance explains why Asia’s policy makers stepped up action last year as the US dollar weakened. With global trade risks rising this year as the US plans tariffs on a range of products, the pressure to protect the competitiveness of export industries is set to build. “Policy makers will likely prefer to keep their currencies competitive relative to trade rivals,” said Henderson, an economist based in Singapore. “This would be consistent with ‘smoothing’ operations in the face of currency strength, evident in the buildup of reserves. Asia’s export outlook for 2018 has also dimmed with the Trump administration now acting on its protectionist threats.” Authorities in Thailand and South Korea have already voiced concern over the strength of their currencies.

Source: Business Standard