"Look how much faster these economies are growing! Just look at their favorable Balance of Payments! Look at the FDI (Foreign Direct Investment) pouring in! Look at their fiscal health!"
These are words I often heard when I arrived in Singapore to run an Asian currency trading business in 2010. The center of economic gravity was moving East - this was the unchallenged view three years ago. It wasn't about 'if,' but 'by how much' will Asian currencies appreciate versus their G-10 (Group of 10) counterparts in the coming years.
Let's take a quick look at the world of trading currencies according to macro-economic fundamentals.
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The first port of call for the macro currency trader has always been the Balance of Payments (BOP) - trends in trade, capital flows and FDI would be scrutinized religiously. If inflows were set to eclipse outflows then the currency in question was going to be a winner. Asian currencies (bar a few exceptions) have certainly ticked the right BOP boxes over the past three years. So why are we perennially disappointed by such a poor performance year after year. More pertinently, why are the forecasts of those clever economists continuously so wide of the mark?
Well, we know Asian central banks aren't shy when it comes to interfering with market forces - currency intervention to protect competitiveness has been a feature of the Asian forex landscape since one was wearing short trousers. But surely this should have been taken into account when the most erudite economists nailed their currency forecasts to the mast.