Persistent dollar weakness may hurt the region's growth in the long-term
Here's how Asian currencies are faring against the US dollar so far this year:
The Thai baht is leading the way, as USD/THB reaches its lowest level since November 2013 after Mnuchin's comments yesterday. Meanwhile, the Malaysian ringgit continues to be buoyed on the back of improved growth prospects as well as higher CPI - which in turn leads to its central bank most likely hiking interest rates later today.
Anyway, on one hand rising currencies are taking the pressure off central banks from moving too quickly as it is likely to slow down inflation a little bit. Expectations have started building up from last year already, and central banks in Asia will welcome recent moves as it gives them more breathing room to manage policy.
On the other hand, export-reliant countries like Malaysia and Thailand will start to feel the pinch as their currencies rise - as they find it difficult to increase exports due to an overachieving local currency.
And that will only serve to add more fuel to the currency war rhetoric in due time.
It's a tight rope that central banks and government officials will have to balance on if the dollar weakness continues into the year. And some authorities like the ones in South Korea has already taken early measures to intervene in the market. It wouldn't be surprising if we see other central banks and governments do the same.
