Synergy FX - How Strong Is Too Strong? Surging Dollar Hits Emerging Economies A sustained dollar rally is exposing the challenging conditions that lie ahead for the global currency markets.

1. SYNERGY FX NEWS
01.08.15
How Strong Is Too Strong? Surging Dollar Hits Emerging Economies
A sustained dollar rally is exposing the challenging conditions that lie ahead for the global
currency markets.
2015 has provided the USD with a strong recovery for the year to date, and the greenback has continued
to make gains against most of the world's top trading currencies. While this may appear to offer a reason
for optimism in the short term, reality may deliver a more complex set of outcomes.
Investors and commentators are already casting a cautious eye over the producer nations of Asia and
South America, as the ripple effects of the rising dollar continue to be felt in the commodities markets.
The rallying global reserve has meant declining revenues for producers of raw materials, and it is little
surprise that the emerging economies of Russia, Brazil, and net exporting nations are bearing the brunt
of a fall in purchasing power. Five month lows for crude oil have added to this gloomy outlook.
There are fears, too, of consequences for those who find themselves trapped on the wrong side of the
currency market. With little sign of the dollar growth's being curtailed at any point in the near future, a
loss today runs the risk of developing into a crisis tomorrow. This is as true for state level institutional
investors as it is for the day trader, and the motivation for Synergy FX to sound a cautionary note when
considering risky plays on the dollar in the months to come.
Concerns in Asia
Voices within Asia have suggested that conditions in the west have been adversely affecting free trade in
the east for some time, and that the resurgent dollar has contributed directly to economic challenges on
all fronts: from falling exports revenues to collapsing Chinese stock. Now, with several Asian currencies
poised at 15 year lows against the greenback - and with fears that a strong dollar may trigger a crisis
within one or more of the region's less resilient currencies - the argument is an increasingly convincing
one.
The value of the Malaysian ringgit has continued its 2015 trend of discovering near-record lows against
the dollar. This month has found MYR/USD positioned at levels which have not been seen since this side
of the 2008 banking failure. The slump in the rupiah meanwhile takes the sheen off Indonesia's otherwise
robust productivity. There are concerns that the country's healthy export picture may not be sufficient to
protect it from contagion, should a currency crisis hit the region.
Whether a healthy dollar is the root cause of Asia's current worries, or is merely a contributor to the
turbulence in the markets, the situation as it stands today is likely to trouble any market analyst with a
memory for economic history. It was an unexpectedly resurgent dollar which surprised the Asian markets
in 1997 and led directly to the run on Thailand's banks. The economic landscape of 2015 is not the same
as it was in 1997. The modernisation and integration of the late 1990s means that the global markets of
today are more interdependent than they were two decades ago. A wave of panic in the East would not
be contained within the Asian markets for very long.