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