And the last became first

Emerging market currencies are making a comeback this year. After a couple of contagion scares in August 2015 and January due to the depreciation of the Chinese yuan, EM currencies have rallied sharply in the past two months on the back of dovish Fed statements and rebounding commodity prices led by crude oil.

The worst became best

Indications the Fed is unlikely to pursue an aggressive interest rate tightening cycle has led the US dollar to pull back, if not completely reverse. Hence, EM currencies such as the Malaysian ringgit, the Indonesian rupiah, the Russian ruble and the Brazilian real – which were sold down the most when the dollar was strong – are leading the recovery now that the dollar is weaker. What were previously the world’s worst currencies became the best... THE LAST BECAME FIRST.

Significntly, we wrote about the “R” currencies (the ringgit, rupiah, ruble and real) back in January (see It’s the Strong Dollar, Stupid! – Episode 3, Jan. 18). It is now evident the worst currencies were the “R” currencies, which are now the best performing currencies.

The tables below will show how currencies performed the past two years where significant highs and lows were reached.

Ringgit and rupiah lead recovery in Asian currencies

In Asia, the worst performing currencies during the past two years were the Malaysian ringgit and the Indonesian rupiah, falling as much as 41.4 percent and 29.8 percent from their 2014 highs, respectively.

In addition to poor oil and commodity prices last year, the ringgit was plagued by allegations of graft and mismanagement over indebted state fund 1Malaysia Development Berhad (1MDB). Meanwhile, President Widodo’s lack of parliamentary support to pursue his reforms weighed on the rupiah.

The Malaysian ringgit and the Indonesian rupiah both hit 17-year lows in September 2015 and have rebounded since, gaining 12.5 percent and 10.5 percent, respectively.