Research Briefing | Sep 24, 2021

APAC | Duelling currencies – the rise of the renminbi in Asia forex

2-Sep-24-2021-06-00-36-59-AM

The role of the RMB is greatest where China is a major destination for manufacturing exports, suggesting that the degree of trade integration with China is key in driving co-movement with the RMB. The RMB has become the most important anchor for the KRW, TWD, SGD, THB, and MYR. In the case of the INR, IDR, and PHP, the modest importance of manufacturing exports to China (measured as a share of GDP) explains the small role of the RMB.

What you will learn from this report:

  • While the US dollar continues to play a significant role in influencing currency movements in the Asia Pacific region, the role of the renminbi has risen, largely at the expense of the greenback. Meanwhile, the euro and the yen appear to
    have little influence on APAC currencies.
  • Even though exports to China are important for Australia’s economy, the large role of commodities means that commodity price changes dominate the impact of the RMB on the AUD. Full or partial pegs to the USD explain the dominant role of the greenback found for the HKD and VND.
  • We expect the RMB’s role in APAC FX markets to increase in the coming decade, amid China’s relatively rapid growth and the opening up of its capital markets. Still, the USD will remain important given its massive financial clout.
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