No rush to rethink ASEAN currencies despite slide

No rush to rethink ASEAN currencies despite slide

SINGAPORE (Reuters): Unwelcome flashpoints on the region's political horizons have triggered sharp falls in ASEAN currencies in recent days but most analysts say there is no reason to panic.

While they're keeping a wary eye on key support levels, most said they were reluctant to cut their forecasts, especially for those currencies that had already been seen as holding more risk.

"People are focused on the political front especially in the ASEAN region but there's no talk of a crisis. I'm not overly bearish on the peso or the rupiah as my expectations there weren't good anyway," said Kevin Ralph, First Vice President of Strategic Trading at Sanwa Bank Limited.

A recent bomb blast outside Indonesia's attorney-general's office drove the rupiah to 16-month lows last week, while growing pessimism over the Philippines' economic and political outlook sent the peso [PHP=] to 30-month troughs on Tuesday.

Some worries about the domestic political scene and still high non-performing loans have also hurt the Thai baht, while the Singapore dollar has been dragged lower alongside its regional counterparts.

But analysts remained relatively upbeat about the fourth quarter, expecting an economic slowdown in the U.S. to dampen the appetite for U.S. dollars.

And the Korean won and Taiwan dollar have been fairly immune to the problems in Southeast Asia, thanks to greater confidence in their political and economic outlook.

The rupiah stands out as one currency analysts have reconsidered, in the light of near 25 percent losses on the year.

Citibank revised down its end-September rupiah target to 8,900 from 8,400 though it still sees the rupiah climbing back to 7,500 per dollar in the 12 months to June 2001.

"Our fundamental view for the rupiah is unaltered. We continue to show the rupiah rallying post the August 'accountability' meeting," it said in a recent research note.

Some analysts have said the rupiah is likely to trade in a 9,000 to 9,500 band ahead of the August legislature meeting at which President Abdurrahman Wahid would be called on to account for his turbulent first year in power.

Last month, Sanwa's Ralph cut his end-2000 rupiah forecast to 8,500 from 7,500 earlier.

Standard Chartered said it was reviewing its third quarter forecasts of 45.50 for the peso, 9,500 for the rupiah and 42.00 for the baht.

But analysts were cautious about tinkering with forecasts for regional currencies other than the rupiah as thin trading conditions have made for wild swings in recent sessions.

"We don't want to get too caught up in market activities seeing the acceleration (in the peso) in the last few days," said Steve Brice, treasury economist at Stanchart.

"The trend is clear but if we did revise the peso now it may prove unwarranted as the dollar does look very overbought."

SEB Merchant Banking Chief Analyst Chia Woon Khien said she was likely to cut her end-Q3 peso forecast to 46.00 from 45.00.

But Thio Chin Loo, strategist at BNP Paribas, said she was sticking to end-Q3 forecasts for 45 pesos, 40 baht and S$1.75 made in the first half of the year.

"We've had low forecasts for regional currencies and our targets are quite achievable. Our end-Q3 8,500 forecast for the rupiah is likely to hold despite mid-term pressure," she said.

The relatively calm assessment of recent currency movements can partly be attributed to low expectations given the economic fundamentals of certain countries.

There are also doubts about the dollar's ability to remain the currency of choice as the Federal Reserve tries to engineer a soft landing for the U.S. economy.

"Asian markets are only going one way at the moment with the bias on the dollar. But we foresee dollar weakness across the board and especially against the yen after the third quarter," said BNP Paribas' Thio.

She said the dollar was likely to peak soon given a likely U.S. move to hike rates for the last time this year in August.

"If high oil prices persist and U.S. asset prices remain buoyant, the U.S. may opt for a further 50 basis point hike in August. This would increase the risk for a hard landing and weigh on the dollar."

"Something else that should help Asian currencies is future inflows into Asia as money stops flowing into the U.S," she said.