Is the Rally in Asian Currencies Justified?

Emeging market currencies heading higher in forex trading

One of the trends that has followed the incidence of increased consumer sentiment has been a rally in Asian currencies. Indeed, emerging market currencies are doing well in forex trading right now as confidence in the global economy increases.

Signs that different major economies are stabilizing are actually providing the impetus for gains in emerging market currencies. There is increased risk appetite as confidence in economic recovery comes to the forefront. But, while this is nice on a number of levels, it may not be justified. The Forex Blog considers the currency rally by Asian currencies on the FX market:

But it’s unclear - doubtful is a better word - whether this rally is supported by economic fundamentals. One commentator summarized this contradiction as follows: “Improved sentiment has led to a massive resurgence in flows to emerging markets, irrespective of the underlying data, which remains weak. Investors are going out of dollars to riskier markets, riskier currencies.”

What you decide to do with your forex trading strategy will depend largely on whether or not you think that this rally by Asian currencies is justified, or just a blip on the still-volatile FX market.