More upside for US dollar against Asian units predicted
Asia well-positioned to ride out the worst of storm in first half of 2009, say banks
By LARRY WEE
(SINGAPORE) The US dollar is set to advance further against its Asian counterparts as economic woes in the largest economies deepen, especially in the first half of 2009, currency analysts warn.
According to UK-based research firm Forecast: ‘The perverse logic, whereby the worse things get for the US and Japanese economies, the stronger their currencies are likely to be - given the ongoing feedback loop from the real economy to the financial sector and back again - is seen persisting.’
And while currency watchers at Barclays Capital, DBS and Standard Chartered Bank differ in their forecasts for specific Asian units, all appear to agree that in the bigger picture, the greenback could first move to higher ground by mid-2009 versus at least some of its Asian counterparts. They predict higher levels such as S$1.48 or even S$1.60 in the case of US dollar versus the Singapore dollar.
DBS and Stanchart do not expect any change in the Monetary Authority of Singapore’s (MAS) current neutral trade-weighted Sing-dollar stance by the time it conducts its next monetary policy review in April 2009, arguing that the more effective counter-cyclical measures adopted by the Singapore government are likely to come from the fiscal side.
Barclays Capital researchers, on the other hand, allow for a slight downward recentring of MAS’s policy bands in the months ahead.
On a brighter note, all three banks are reassuring clients that Asian countries - and therefore their currencies - are well-positioned to ride out the worst of the storm in the first half of 2009 and should subsequently recover - especially compared with their emerging market counterparts elsewhere, such as in Eastern Europe and Latin America.
Stanchart researchers say: ‘We expect global economic expectations to bottom out in Q2 2009, which is also the time when the credit crisis could be past its worst.
‘Beyond Q2 2009 we expect the US dollar to enter another multi-year decline against most major currencies, including the Singapore dollar.’
But according to Barclays: ‘In the near term, the basic dynamics present in the second half (of 2008) are likely to continue to drive Asian currencies - as the rate-cutting cycle remains far from complete - and, coupled with illiquidity in spot, forward and option markets, may result in exaggerated market adjustment.’
DBS currency analysts suggest Asian currencies should be able to recover 5 to 6 per cent versus the US dollar further out over the course of the next 12 months, but say they may weaken a little more versus the greenback in the nearer term. The economies of Singapore and Hong Kong could be among the worst hit by current global recession worries, but China and India should emerge in better shape.
The DBS analysts say: ‘Asian central banks will probably not let their currencies appreciate much until their international liquidity positions have strengthened and the external sector bottoms and finds a firmer footing with the global recovery.’
Stanchart’s researchers belong to the camp that believes that the US dollar has already peaked versus its major counterparts, and forecast that it could slide to an all-time low of 75 yen in the first half of 2009.
At the same time, however, they say the greenback may still have some upside versus Asian counterparts because the region’s economies are likely to get worse before they get better.
In the shorter term, the Stanchart team feels, worries about this part of the world centre on three key factors - deleveraging, deflation and depreciation.
Down under, Forecast takes a different view. It is concerned that the Australian dollar may be dragged below 60 US cents as its interest rate advantage narrows further versus other currencies.
It says: ‘The still-unravelling once-in-a-generation positive terms of trade shock of 2007-08, combined with the prospect of Reserve Bank of Australia policy rates falling further than (almost) anyone bar ourselves has been formally willing to predict, leaves us wanting to continue giving the Aussie a wide berth once the current year-end correction has run its course.’
Source : Business Times - 02 Jan 2009
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