As the global economy's outlook worsens, investors are flocking to the US dollar as a safe haven. The US dollar index, a currency basket weighted against the US dollar, has reached a 20-year high. In other words, the US dollar is stronger than it has been in a long time.
For Southeast Asian small and medium-sized enterprises (SMEs) involved in international trade, the value of their local currency against the U.S. dollar is important. Prices on the world market are often quoted in dollars. That means if a company's local currency fluctuates against the U.S. dollar, its competitive position in the international market changes.
Exporters Benefit from Weaker Local Currency
Exporters usually benefit if their local currency devalues against the U.S. dollar. Weak local currency means it is cheaper for international buyers to buy goods and services in the local currency. SMEs thus become more internationally competitive if their currency devalues against the dollar.
Importers Benefit from a Strong Local Currency
For importers, it's the other way round. Importers benefit from a stronger currency because they can purchase more goods and services in the international market. On the other hand, a weaker currency is not good for importers because they have to pay higher prices.
Many Companies Are in Between
Many companies are not only exporters or importers, but they very often import input goods they need for manufacturing and export the final goods. For example, an automobile manufacturer might import semiconductor microchips or machine parts and export the final car.
As a result, it is not easy to say how currency fluctuations can impact a specific company. It depends on their exposure to international markets.
Southeast Asian companies tend to be net exporters. For example, tourist companies generally benefit from a weaker local currency. Also, export-heavy economies like Thailand benefit from a weaker currency.
So altogether, a stronger U.S. dollar should be good for Southeast Asia, although it is certainly not good for every single company.
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