Most Asian currencies recover on Wednesday after its earlier fall due to Moody’s one-notch downgrade on China’s credit ratings for the first time in almost 30 years.
The Chinese yuan gained 0.02percent to 6.8893 while the Australian dollar sometimes utilized as an alternative for China-related trades rose 0.05 percent to 0.1942.
Japanese yen rebounded against the US dollar with 0.05 percent gain to 111.84 while the Korean won slipped 0.1 percent to 1,124.38.
The Taiwan dollar boosts 0.07 percent to 30.170 whereas the Thai baht was 0.1 percent lower to 34.400 prior to a central bank policy meeting later in the day to which the Bank of Thailand is expected to stand pat on its benchmark interest rate of 1.5 percent.
The Philippine peso gained 0.2 percent to 49.952 after being the biggest loser in the region a session earlier losing 0.3 percent, its biggest decline in two weeks.
Although, analysts believe that even if the Philippines does not have substantial resources export relationship with China it definitely has strengthened structural relationships with China over time.
A senior strategist said that the currencies are responding rather calmly given that China is still have seen to have enough reserve strength for further fiscal spending.
Moody’s Downgrade to China
Moody dropped China’s long-term local and foreign currency issuer ratings by one-notch from Aa3 to A1 saying that it expects the country’s financial power to go down in the upcoming years seeing that debts keeps on growing and the slow development of the economy.
The downgrade took place when the Chinese government struggles with the challenges of rising financial threats originating from years of credit-fueled stimulus.
Therefore, Beijing has created a much stronger campaign so as to control risky investment and financing methods that may cause a serious problem to the stability of China’s economy.
However, the country’s Finance Ministry stated that the downgrade which is Moody’s first for China since 1989 overrated the threats to the economy and was based on the pro-cyclical rating method which is not appropriate.
The Ministry said that Moody’s viewpoints overestimates the struggles China is encountering at the same time underestimating the Chinese government’s capability to step up supply-side structural reform and boost overall demand.
The Ministry also stated in relation to its economic growth that their GDP will keep medium and high level growth and will offer fundamental support to prevent local government debt risks. Moreover, they added that China’s government debt threats will not significantly change in the period of 2018-2020 from 2016.
Moody estimated the government’s direct debt crisis to grow little by little to 40 percent of GDP by next year and closer to 45 percent by the end of the decade.
A rising number of economists believe that a huge bank bailout may be unavoidable in China as bad loans grow.
Most of the Asian currencies are currently trading on the upside despite the impact caused by Moody’s downgrade hence advising investors to keep an eye on the currencies movements until signs of any significant gain.