At last, the Fed announced the long-awaited tapering. Financial world was scrambling to get behind the stronger USD. Bloomberg (19/12) reported that Asian currencies, including Yen, fell after the announcement. Are you one of the traders who took profit from this event? Or are you dropped down like Asian currencies? The Asians, especially Indonesians, are questioning whether this is a signal for upcoming crisis.

At last, the Fed announced the long-awaited tapering. Financial world was scrambling to get behind the stronger USD. The Greenback instantly rose to the highest in five year against Yen. Bloomberg (19/12) reported that Korean Won, Malaysian Ringgit, Thailand Baht, and Indonesian Rupiah fell after the announcement. Are you one of the traders who took profit from this event? Or are you dropped down like Asian currencies? The Asians, especially Indonesians, are questioning whether this is a signal for an upcoming crisis.

Bitter Experience
Shigehisa Hiroki of Mizuho Corporate Bank Ltd said that the fall of Asian currencies could be spontaneous reaction, and not something that will go on for long. Rajiv Biswas, Asia-Pacific Chief Economist of IHS in Singapore, also called tapering as good news because it denotes good US economic recovery, which means that there is a very good market for Asian goods. However, it is difficult for Indonesian to ignore the fact that IDR fell to 12.203 per USD, its lowest since 2008. When this news is written, Rupiah's middle rate run around 12.191.

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USD/IDR till noon of 19 December 2013

Experiences from the last crisis in 97/98 and 2008 evidenced that the fall of Asian currencies initiated disastrous chain of events. In Indonesia, for example, the low Rupiah already has far-reaching consequences. Budget deficit is predicted to swell, companies are preparing themselves for increases in cost of production, and even right now, prices of goods is already climbing higher. We haven't even count how big the governments debt would be, as well as inflation and other macroeconomic indicators.

Profit Taking
Since the beginning of stimulus program by the Fed, investors flocked to invest in Asia, including Asian currencies. American market was seen as unsecure during that period, so investors are attracted to Asia's potential growth. Nevertheless, now that American market is seen as coming back to life, investors went there right away because they want their share of profit. This is one of several factors behind the fall of Asian currency. Emerging countries in this region is know as susceptible to capital flight due to the high level of foreign investment.

However, we agree with Shigehisa Hiroki that the current fall is temporary. Of course, this is arguable, but there are some reason for this:

  • Tapering signify better outlook for US economy. Since the US is an important market, recovery will mean better prospect for Asians too.
  • What happened right now is just a mini-tapering. The Fed was just cutting its stimulus from 85billion dollar per month into 75billion. On one hand, this mean recovery is not yet complete and Asia can't hope for the market to be in its best condition. But it also mean that there are no extra incentive for investors to leave emerging markets in Asia.
  • The Fed will not raise its benchmark interest rates nor cut more stimulus before unemployment lessens. Unemployment projections are getting better, but real data will not out until next year. In short, there is still time for Asian currency to recover before being kicked again.
  • Asia now is different than it is in the old times. Right now, Asian central banks have enough reserves to intervene if their respective currency need any help. Apart from that, the Wall Street Journal claimed that within the time the Fed needed to decide on tapering, Asian central banks have prepared themselves for whatever occurence that will go on after tapering.

Till some time in the future, we will wait with bated breath if Asian currencies really could revive in time. For the good of the people, we sincerely wish it won't drag the region into crisis once again. Before that happened, please feel free to make use of this moment to take some more profit in the forex market.