(Nov 14): The Thai baht is poised to become one of the most vulnerable emerging market Asian currencies as Donald Trump returns to the White House, given the country’s heavy reliance on trade.

The baht is also highly sensitive to the Chinese yuan and one of the most over-valued Asian currencies on a trade-weighted basis, according to Bloomberg-compiled data. Data on EM currency moves in 2018, following Trump’s tariff announcement early that year, also portends choppy months ahead for the Thai currency.

Meanwhile, the Philippine peso and Indian rupee are showing signs that they’d be more resilient to Trump’s policies, which are expected to include heavy tariffs and tax cuts. These currencies were among the least affected when a dollar index rose in October as investors priced in US election risks.

Asian currencies may further slump if the dollar extends due to Trump’s policies that fuel US output. Early market reactions to the US election indicate the prospects of trade-reliant nations are particularly more vulnerable.

“The timing and degree of tariff implementation may matter, and these are still uncertain,” said Christopher Wong, a currency strategist at Oversea-Chinese Banking Corp in Singapore.

Here are four charts that reveal how EM Asian currencies stack up before Trump takes office.

1. Trade-related valuations

The baht’s real effective exchange rate (REER) is 1.5% above the 10-year average, according to data from the Bank of International Settlements. It is the currency’s value measured against a basket of its peers, with a higher REER indicating declining trade competitiveness.

Thailand’s openness to trade could also backfire if Trump restricts imports. The nation’s trade volume stands at 129% of its gross domestic product, among the highest in the region, according to data from the World Bank. Its top two trading partners are China and the US, which collectively receive one-third of Thailand’s total exports.

2. Correlation with dollar

The peso and rupee had the lowest correlation with the Bloomberg Dollar Spot Index in the 30-day period up to Nov 8 — when investors increasingly priced in a Trump win. Such imperviousness displayed by the two EM currencies could help them later if the Trump trade — which includes a stronger dollar — dents other currencies in the region. In comparison, the more negative correlation seen in the yuan, won and the baht means a rallying greenback would exert more depreciation pressure on the currencies.

3. Volatility

Emerging-market currency volatility started to rise in early 2018, relative to that of developed-markets, after Trump announced tariffs in his first term, starting with a 30% tariff on solar panel imports. In comparison, the EM FX volatility gauge remained low in 2017.

The pattern from 2018 shows Asian EM currencies are in for more uncertain months ahead when policy details are enacted, and that they matter more than threats that had emanated from campaign rhetorics.

4. Correlation with yuan in 2018

The peso, rupee and won had the lowest daily correlation with onshore yuan moves in 2018, as Trump’s tariff policies were rolled out, an indication that these currencies again could be less vulnerable to a tit-for-tat escalation in a trade-war between the US and China. Meanwhile, the baht and ringgit had the highest correlation with the Chinese currency over the same period.

Uploaded by Magessan Varatharaja