Asia currencies seen strengthening in 2000

Asia currencies seen strengthening in 2000

SINGAPORE (Reuters): Robust global growth and a gradual pick-
up in inflationary pressures should see most Asian currencies
reaching for higher ground this year.

A Reuters poll of 92 economists and dealers across Asia found
that regional currencies are set to ride a wave of investment and
asset inflows, leaving the worst of the crisis far behind.

As inflation picks up alongside rising imports, employment and
consumer demand in the second half, central banks are expected to
allow their currencies more leeway to appreciate.

"The authorities may be approaching a policy crossroad in
managing the current economic cycle," said Chia-Liang Lian, fixed
income strategist at Merrill Lynch.

"Specifically, central banks could acquiesce to stronger
currencies if balance of payments inflows continue unabated amid
maturing economic recoveries," he said.

The Australian and New Zealand dollars are expected to make
strong headway thanks to rising commodity prices, while the
Korean won, which gained 5.4 percent in 1999, is seen surging
some 10 percent by the end of 2000.

Marginal gains are predicted for the Thai baht and Philippine
peso, which lost about three percent each against the dollar last
year amid worries about public and private sector debt.

As much of the upside for regional currencies is likely to be
driven by foreign portfolio flows, analysts warn that any rout on
Wall Street could shake confidence in markets across the Pacific.

Indonesian rupiah. Indonesia's huge debt overhang and the
uncertain fate of President Abdurrahman Wahid's infant government
will keep the rupiah a risky buy this year.

An improved economic picture is likely to be offset by a jump
in imports and foreign debt repayment, as well as worries about
communal violence.

Analysts expect the rupiah to be near current levels by mid-
year, with an average forecast of an over seven percent rise to
6,685 per dollar by end-December.

Koraen won. Official forecasts of growth in excess of seven
percent this year and robust foreign direct and equity investment
should help the won extend its blistering rally.

Interbank dealers and economists expected the won to gain over
five percent by the end of June and some 10 percent by end-2000,
from about 1,135 currently.

Analysts said the won was undervalued due to heavy
intervention by Korean authorities, who are anxious to keep
exports competitive, but the government is likely to relax its
grip on the exchange rate to curb inflationary pressures.

Only a worsening of Daewoo's debt crisis could pose a serious
threat to the won uptrend, if it spurred an exodus from Korean
asset markets, analysts said.

Singapore dollar. Singapore's sound fundamentals and signs of
a pick-up in inflation should see the local dollar appreciate
steadily through the year, with analysts predicting a five
percent gain from the current 1.67 per U.S. dollar by year end.

Most houses did not foresee a significant build-up in domestic
price pressures but some cautioned that the island remained
highly vulnerable to external shocks like a dramatic rise in oil
or commodity prices.

Singapore's central bank is believed to have intervened in
recent months to cap the Sing dollar, which is managed against an
undisclosed trade-weighted basket of currencies.

But Prime Minister Goh Chok Tong was quoted as saying the
island had never depended on a weak currency to stay competitive.

Taiwan dollar. Taiwan's return to pre-crisis growth rates and
a seemingly unstoppable stock market are expected to lift the
tightly controlled Taiwan dollar 1.2 percent to 30.36 by year-
end.

Analysts expected its rise to be muted by the central bank's
frequent interventions -- part of an unspoken policy of
protecting exporters.

Taiwan's expected entry to the World Trade Organization in the
second half could see the local dollar benefit from foreign
investment flows, though some analysts expected a shrinking trade
surplus to weigh on the currency.

Philippine peso. The peso should strengthen marginally this
year, thanks to strong growth in exports, remittances from
Filipinos working overseas and U.S. dollar loan proceeds.

But worries about the ballooning budget deficit and growing
political risk could limit foreign investment flows.

"Although the current account will be very strong, I think
because of the domestic political uncertainty with regards to
liberalization and charter change, the Philippines will not
outshine the rest of the region," said Chan Chia Lin, head of
Asian economic research at ABN Amro Bank in Singapore.

Thai baht. The baht is expected to move in a stable range near
its current level, supported by a pick-up in capital inflows as
Thailand's economic outlook improves.

Analysts said Thailand could make further headway in repaying
foreign debt in the first half, while foreign portfolio flows
were likely to improve further into the year.

They expected the baht to remain on the weaker side of 37 per
dollar on average, but strengthen slightly from its 37.52 level
at the end of 1999.

Malaysian ringgit. Malaysia is not expected to abandon its
currency peg of 3.80 ringgit to the U.S. dollar before June, but
half of the research houses polled saw the government re-
examining its exchange rate policy beyond mid-2000.

This could result in an adjustment of the fixed rate or a move
to a managed float, with the undervalued ringgit seen
appreciating by about 3.8 percent to 3.66 per dollar by year-end.

Prime Minister Mahathir Mohamad has said the ringgit peg will
remain until there is a global agreement on a new financial
framework that would prevent speculative attacks on currencies.

Australian dollar. Higher commodity prices, driven by a pick-
up in world growth, are expected to propel the Australian dollar
to levels not seen since November 1997.

Analysts see the Aussie gaining over five percent to end the
year at US$0.7023 against the current US$0.6660, supported by an
expected rise in official interest rates.

Tax reforms encouraging investment which start in July and the
Olympic Games in September should keep the Aussie supported in
the second half, but its rise could be slowed by a large trade
deficit, yen strength or if commodity prices fail to rally.

New Zealand dollar. The region's other commodity currency, the
New Zealand dollar, looks set to soar this year, with analysts
predicting an average five percent rise in the first half and a
near 10 percent gain over the course of the year.

The kiwi lost about 0.5 percent against the U.S. dollar in
1999, but analysts said its prospects should improve with the
economy now on the verge of sustainable expansion.

Expectations of a series of interest rate hikes this year
could also bolster the kiwi, but New Zealand's large current
account deficit remained a worry, analysts said.

(table)

Rate at 0820 GMT end-June end-2000

on 14/1/00 forecast forecast
--------------------------------------------------------
Indonesian rupiah 7,200 7,166 6,685
Korean won 1,135 1,080 1,034
Taiwan dollar 30.75 30.38 30.36
Singapore dollar 1.67 1.63 1.59
Philippine peso 40.600 39.895 40.055
Thai baht 37.50 37.19 37.30
Malaysian ringgit 3.80 3.80 3.66
Australian dollar 0.6660 0.6821 0.7023
New Zealand dollar 0.5228 0.5511 0.5797