Asia's currency plight not so bad compared to Aussie, NZ dollars<\/p>\n
HONG KONG (Dow Jones): Political and economic problems have
\ntaken a heavy toll on Southeast Asia's currencies this year, and
\nmost continue to sag in relation to the U.S. unit.<\/p>\n
Oddly, however, the plight of the Asian currencies doesn't
\nlook so bad when they are weighed against the Australian and New
\nZealand dollars, instead of the U.S. currency, and this has some
\neconomists baffled.<\/p>\n
The greater political and economic stability of Australia and
\nNew Zealand hasn't protected their currencies from the troubles
\nof the Thai baht and Philippine peso. Both the Australia and New
\nZealand dollars have sunk against the U.S. dollar this year.<\/p>\n
The situation raises questions as to whether the foreign
\nexchange market is mis-priced, but there also appear to be
\neconomic reasons why rates are where they are, say analysts.<\/p>\n
The New Zealand dollar has dropped 11 percent and the
\nAustralian dollar 6 percent against the baht since the start of
\nthe year, through last Friday. And those currencies have lost 7.7
\npercent and 2.3 percent, respectively, against the Philippine
\npeso.<\/p>\n
The New Zealand dollar has even slipped 4.0 percent against
\nIndonesia's currency, although the Australian dollar has managed
\na 1.6 percent gain on the rupiah.<\/p>\n
Asia's problems have been dutifully noted by the foreign
\nexchange market by way of continued gains in the U.S. dollar's
\nvalue. But the market has downplayed the political and economic
\nstability in Australia and New Zealand, at least when pricing
\ntheir units against their Asian counterparts.<\/p>\n
The market is \"just not where it should be, based on economic
\nfundamentals,\" said Ong.<\/p>\n
Yields, however, show that misalignment may be only part of
\nthe explanation.<\/p>\n
The Australia and New Zealand dollars have traditionally been
\nconsidered \"high-yield\" currencies, based on the premium on
\ninterest rates paid on their government debt compared with U.S.
\nTreasuries. But that image is being eroded, a fact that
\nAustralian central bankers privately acknowledge even as they
\npublicly blame the market's obsession with the U.S. dollar for
\ntheir currency woes.<\/p>\n
Yield shoppers might favor some Asian investments instead. If
\nyou can stand the heat, the Philippine government's five-year
\nbonds were yielding around 17 percent at the end of last week.
\nThat compared with 6.05 percent and 6.75 percent, respectively,
\non the five-year government debt of Australia and New Zealand,
\nand the comparative U.S. Treasury note, at 5.72 percent.<\/p>\n
Growth dynamics also support Asian currencies.<\/p>\n
Despite much gloom around the region, Morgan Stanley Dean
\nWitter & Co. economist Andy Xie predicts \"a substantial out-
\nperformance from non-Japan Asia in a slowing global economy\" next
\nyear.<\/p>\n
Non-Japan Asia should grow 6.5 percent in 2001, according to
\nMorgan Stanley. Although that was revised down by 0.2 percentage
\npoint in light of oil price rises, it still compares favorably
\nwith a 3.9 percent growth expectation for the global economy and
\nthe firm's call for 3.6 percent growth in Australia next year.<\/p>\n
\"The only scenario we see that would make us wrong (on the
\nout-performance of Asia) would be a hard landing for the U.S.
\neconomy, the impact of which would be simply too large to offset
\nby other sources of demand,\" according to Xie.<\/p>\n
Current account balances have been among the biggest worries
\nfor investors in New Zealand and Australia. They recall current
\naccount gaps were a warning sign for East Asia in 1996, months
\nbefore the region fell into crisis.<\/p>\n
Merrill Lynch & Co. is telling investors New Zealand's deficit
\nthis year will be 7.2 percent of gross domestic product, albeit
\nan improvement over 1999. It has Australia at a 4.7 percent
\ndeficit-to-GDP prediction in 2000 and 4.2 percent deficit in
\n2001.<\/p>\n
At the same time, Merrill pegs non-Japan Asia in surplus to
\nthe tune of 3.1 percent of GDP this year and 1.8 percent next.<\/p>\n
Monetary policy and regulation have also made a difference in
\nthe currency markets. While the authorities in Australia and New
\nZealand are clearly anxious about the U.S. dollar's upward pace,
\ntheir preferred management policy is \"benign neglect.\"<\/p>\n
Southeast Asian central bankers, however, have shown
\nthemselves to be far more proactive. Officials regularly make
\nbold statements on exchange rates and don't fundamentally stamp
\nout whispers that currency controls could be introduced to
\nrestore market \"order.\"<\/p>\n
Penalties have also been doled out to those suspected of
\naiding speculators, while tens of millions of dollars have been
\nspent in actual market intervention.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/asias-currency-plight-not-so-bad-compared-to-aussie-nz-dollars-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}