Asian currencies to consolidate soon
Asian currencies to consolidate soon
SINGAPORE (AFP): Asian currencies face consolidation in the week ahead as markets seek justification for the strengthening of regional units against the greenback, analysts say.
They say the consolidation will be evident in the Indonesian rupiah, which rallied last week to a nine-month high and briefly breached the 7,000-to-the-dollar level.
"We don't think the rupiah is sustainable above 7,000. If we look at the balance of payments outlook exports are still down, and there are still debt repayments to be made, so there will be those who will want to buy dollars," said Thio Chin Loo, currency strategist at Banque Paribas here.
Thio favored a return of the rupiah to 9,000 levels. The Indonesian unit ended Friday at 7,775 to the US dollar from 8,325 the previous week.
Some dealers however expect a rise in the rupiah, as billions of dollars from the International Monetary Fund (IMF) to Indonesia are converted into rupiah. They note remarks by Bank Indonesia governor Sjahril Sabirin that the rupiah could strengthen to 6,000 and that Indonesian exports will remain competitive.
Liquidity, following a global move towards lower interest rates, rather than economic fundamentals, was driving trade in the regional currencies, said Thio.
"At these levels, the currencies have bottomed out. There's no big rally in sight and we think they will remain rangebound," she said.
The Thai baht held its ground and closed last week at 37.65, up slightly from its close the previous week of 37.84 to the dollar.
Dealers said profit-taking in the baht was tempered by investors buying it back for hedging purposes and checks by the central Bank of Thailand to curb any further appreciation of the currency.
The Singapore dollar fell to 1.6273 to the US dollar from 1.6198 a week earlier. Its movement was partly influenced by the Japanese yen, which came off its gains to close last week at 119.20 from 114-levels.
Foreign inflows boosted the Philippine peso which rose to a three-month high of 42.05, while central bank intervention to slow the Taiwan dollar's appreciation saw it steady through the week to end at 32.898. The South Korean won gained to close at 1,316 to the dollar.
Markets welcomed the decision of major Japanese banks to seek an infusion of capital from public funds. But some warned of increasing deflation in Japan despite its strategy to save its ailing banks.
"The strong yen has exacerbated deflation in Japan, making it harder for Japan to get out of the current downward spiral of contracting credit, declining consumption, falling wages and plunging industrial production," said Christopher Wood of Santander Investment Securities Asia in a commentary.
"The longer Japan takes to recover, the less hope the rest of Asia has for a revival in Japanese demand," he said.