Market Overview

Asian Currencies Rise Higher on Economic Improvements in Japan and Europe

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The Asian currencies are mostly trading higher against the U.S. dollar on Tuesday, following better than expected economic results from Japan and positive developments in Greece. The greenback lost 0.17% against the Japanese yen to trade around ¥80.755.

The Japanese currency found strength in better than expected retail sales results. According to data released today, Japan's retail sales in May were 1.3% lower than a year earlier, which is below -4.8% recorded in April and -2.2% expected by most analysts. The news has been welcomed by analysts since it suggests the Japanese economy is recovering from the earthquake and tsunami disaster, which has caused power shortages and supply disruptions in parts of Japan.

The developments in the Eurozone also positively affected the yen and other Asian currencies. French banks, which are most exposed to the Greek debt, have agreed to give Greece 30 years to repay its debt. The rumor is Germany's banks are interested in the same model. The problem is the rating agencies have already said they will view this sort of development as a technical default for Greece.

The Europeans are likely to push through their plans anyways since the clock is ticking and it seems that the previous attempt to salvage Greece, which did not include private sector, utterly failed. It is clear that the Greek default would not be the end of the debt crisis in the Eurozone periphery. Rather, the crisis would just move to Portugal and Ireland. As a result, the latest proposal by French banks can be interpreted as yet another sign that the Europeans are ready to employ whatever means necessary to keep Greece afloat.

The East Asian economies are exports-driven and a double dip recession in the Eurozone, which might be a consequence of the Greek default, would certainly harm the performance of their economies and currencies. As a result, good news from Greece has been interpreted as good news for the Asian exporting nations. The greenback lost 0.19% against the South Korean won to trade around 1082.80. At the same time, the U.S. currency lost 0.18% of its value against the Taiwanese dollar to trade around 28.92.

One loser among the Asian currencies in today's trading is the Thai baht. At the moment, the dollar stands at 30.9950 against the baht, or 0.26% higher than yesterday's close. Thais are preparing to go to elections on July 3 and the opposition, which leads the polls, said the Thai baht needs to be competitive.

Thailand has been fighting to prevent its currency from rising too high against the dollar, which would make its exports less competitive. In effect, the current opposition suggested a managed fixed-exchange rate for the baht in order to prevent it from rising and damaging Thailand's exporters.

The East Asian economies rely heavily on the performance of its exporters. The failure of Europe to resolve its problems would probably push not only Europe but a number of East Asia's exporting nations back into recession. Traders who believe that the Europeans will do what is necessary to prevent the Greek default will be more optimistic about the East Asian currencies as well. As a result, these traders will be interested in the WisdomTree Dreyfus Japanese Yen Fund (NYSE: JYF), the iShares MSCI Taiwan Index Fund (NYSE: EWT) and the iShares MSCI South Korea Index Fund (NYSE: EWY).

Other traders might be worried that continuing uncertainties in the global markets will hurt Japan's recovery efforts. In addition, while Japan is struggling to end the supply disruptions, the Chinese are entering into the production of more sophisticated products, where Japan and Korea currently have an upper hand. Some analysts might think that the tide is turning into China's favor. These traders will be more interested in the ProShares UltraShort Yen ETF (NYSE: YCS).

Posted-In: News Emerging Market ETFs Currency ETFs Forex Economics Markets ETFs

 

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