BANGKOK • Typically regarded as the more vulnerable currencies in Asia to external shocks, the ringgit, baht and rupiah are proving the most resilient on their relatively lower exposure to China and a dovish United States Federal Reserve.
The Malaysian, Thai and Indonesian exchange rates are the top three performers among Asia's emerging markets over three months.
That is a reversal of fortune from 2013's taper tantrum when they trailed their North Asian counterparts - like the South Korean won and Taiwan dollar - as the US central bank indicated it would wind down unprecedented stimulus.
"The market has moved away from being wary of Fed tightening to pricing in a Fed relent and that's benefiting countries with higher-yielding assets like Indonesia for now," said foreign-exchange strategist Mallika Sachdeva of Deutsche Bank in Singapore.
"North Asian currencies are being treated as proxies for China currency stress."
Slowing inflation and faster growth in Indonesia are luring foreign funds to the country, while Malaysia's government managed to keep its budget deficit within target and the country's exports have held up even as oil prices slumped.
The ringgit rose 4.9 per cent over three months, while the baht and the rupiah climbed 1 per cent and 0.9 per cent, respectively. All other Asian emerging-market currencies have dropped, led by a 4.2 per cent decline in the won.
A lot of negatives had already been priced into these exchange rates because of the plunge in commodity prices last year, said Mr Nizam Idris, head of strategy for fixed income and currencies at Macquarie Bank in Singapore. "If the dollar strengthens again and that is our base case going forward, then South-east Asian currencies can also weaken but with a lower beta than North Asian currencies," he said.
The resilience of South-east Asian exchange rates is buoying demand for the nations' local-currency sovereign debt, and Fed chair Janet Yellen's remarks to Congress that US interest-rate increases may be delayed drove them higher on Thursday.
Thailand's baht is less vulnerable than the rupiah or ringgit as foreign funds hold a smaller proportion of Thai sovereign notes, Macquarie's Mr Nizam said.
Indonesia's economy beat analysts' estimates to expand 5.04 per cent in the fourth quarter and inflation has stayed below 5 per cent over the last three months after exceeding 7 per cent in the middle of last year.
Malaysian exports have risen for seven consecutive months to December. Thailand will release on Monday its gross domestic product (GDP) figures, which economists expect to increase by 2.7 per cent.
Indonesia, along with Malaysia and Thailand, is counting on a combination of domestic demand and public spending to shore up its economy.
Private consumption makes up 56 per cent of Indonesia's GDP and 51 per cent of Malaysia's, according to figures from Bank of America Merrill Lynch.
North Asia is more reliant on exports and closely tied to China. Around 40 per cent of Taiwan's overseas sales and 31 per cent of South Korea's go to the mainland. That compares with 18 per cent for Malaysia, 15 per cent for Thailand and 12 per cent for Indonesia.
"In the near term, with external drivers weak across the globe, economies with domestic demand strength will likely continue to outperform," said Ms Irene Cheung, a foreign-exchange strategist in Singapore at Australia & New Zealand Banking Group, the most accurate forecaster in Bloomberg rankings for Asian currencies. "North Asian currencies are more exposed to the global trade recession." BLOOMBERG