As a general rule, the forex market is one of the most attractive entities of its type from an investment perspective.
After all, this market sees approximately $6.6 trillion traded globally every single day, while the highly leveraged nature of the space and its ability to deliver margin-based profits draws aspiring investors from across the globe.
Like all markets, however, the foreign exchange has been impacted by the coronavirus outbreak, particularly emerging currencies in Asia. We’ll explore this further below, while asking whether this is a viable option in the current climate.
How has Forex Trading Been Impacted by Covid-19?
Unsurprisingly, the impact on the forex market has followed the global spread of the virus, with the Chinese Renminbi one of the first currencies to see a marked decline in value.
Interestingly, this caused a knock-on effect for the Australian dollar, with China and Australia bound by a longstanding and lucrative trading partnership. In fact, China is Australia’s largest trading partner, with the annual, two-way trade volume between these two nations peaking at $215 billion as recently as 2018.
Historically, the Renminbi has been restricted to trade in narrow and limited ranges, creating a scenario where the AUD is used as a proxy.
However, many investors saw both as increasingly risky currencies as the coronavirus pandemic took hold, while some took flight and eschewed emerging currencies in exchange for more stable assets.
In this respect, China led a steep decline in the value of emerging Asian currencies during Q1 and Q2 of 2020, as the impact of lockdowns and quantitative easing measures (which typically involved slashing the base interest rate and lowering the demand for domestic currencies overseas) caused a huge fall in prices.
Are There Signs of Recovery in Asia?
As we can see, China is something of a trailblazer in terms of Asian currencies, and the most recent trends suggest that something of a recovery is underway in the region.
More specifically, the Renminbi embarked on its largest quarterly rally on record in Q3, strengthening by 4.3% to an impressive 6.7730 per US Dollar. It also emerged as the best performer in Asia during this period, as the buying momentum rose to its highest level since January.
Of course, this trend was also exacerbated by the relative decline of the greenback, with the US also poised to roll out extensive stimulus measures in the near-term.
At the same time, analysts have revealed that Vietnam’s ailing currency is set to embark on an upward trajectory and remain stable for the rest of 2020, as it reached VND23,205 against the dollar earlier this week.
Looking forward, it’s likely to Asian currencies will continue to grow incrementally in value in the near-term, so long as significant second spikes and further national lockdowns are avoided in the region.
It’s also clear that China will lead this trend, and there’s no doubt that investors will focus heavily on the Renminbi as they look to plan and execute their currency trades in the future.