India’s rupee and Malaysia’s ringgit will lead declines in Asian currencies this quarter as the global slowdown damps export demand, according to Oversea-Chinese Banking Corp., the most-accurate forecaster.
The rupee and the ringgit, which led gains in the three months through September, will drop 2.5 percent and 2.2 percent against the dollar, respectively, by year-end, said OCBC, which had the closest estimates in the last six quarters as measured by Bloomberg Rankings. Westpac Banking Corp., the second-best, predicts Taiwan’s dollar will weaken the most with a loss of 1.9 percent. The two banks expect all of the eight most-traded Asian emerging-market currencies to decline.
The Bloomberg-JPMorgan Asia Dollar Index climbed 1.7 percent last quarter, the most in two years, as the U.S., Europe and Japan stepped up measures to spur their economies. The Reserve Bank of Australia unexpectedly reduced the benchmark interest rate by a quarter of a percentage point last week, while the Asian Development Bank lowered its growth forecast for Asia excluding Japan, saying deceleration in China and India was tempering earlier optimism. The World Bank said today it cut its 2012 estimate for East Asia, which excludes Japan and India, to 7.2 percent from a May projection of 7.6 percent.
“The macro backdrop remains less than hospitable for strong Asian currency gains,” Emmanuel Ng, a Singapore-based strategist at OCBC, the republic’s second-biggest lender, said in an Oct. 4 interview. “With the RBA setting the tone, we also expect regional central banks to continue to lean toward growth.”
Wells Fargo & Co., the third-most accurate forecaster, is more positive, predicting gains of 1.7 percent and 1.4 percent against the greenback for the Philippine peso and the ringgit, respectively. The San Francisco-based bank sees most Asian currencies rising by year-end, with only the Chinese yuan and the Taiwan dollar losing ground.
The rupee advanced 5.3 percent against the dollar last quarter, followed by a 3.5 percent appreciation in the ringgit and a 1.9 percent gain for the Taiwan dollar. India’s currency has since advanced 1.3 percent to 52.1775 as of 9:13 a.m. in Mumbai, Taiwan’s currency rose 0.2 percent to NT$29.275, while Malaysia’s declined 0.2 percent to 3.0689.
Analysts were ranked according to the accuracy of their estimates in each of six quarters beginning with the three months through June 2011. To test long-term accuracy, Bloomberg added one annual forecast made on Sept. 30, 2011, for Sept. 30 this year.
Fed Impact Fading
The Asian Development Bank cut its growth forecast for the region to 6.1 percent this year and 6.7 percent in 2013, compared with previous estimates of 6.6 percent and 7.1 percent, the Manila-based lender said in a report on Oct. 3. The European Central Bank is ready to start buying government bonds, President Mario Draghi said on Oct. 4. The Federal Reserve announced a third round of asset purchases, or quantitative easing, last month and the Bank of Japan also stepped up its note-buying program.
Central banks across Asia have been easing monetary policy to spur economic growth. The Reserve Bank of India unexpectedly cut the amount of deposits lenders must set aside as reserves to 4.5 percent from 4.75 percent last month. The Bank of Korea will reduce its benchmark interest rate by 25 basis points to 2.75 percent on Oct. 11, according to 12 out of 14 economists surveyed by Bloomberg.
“We see Asian foreign exchange as relatively extended at present, with the aftermath of the latest Fed easing still driving markets,” Huw McKay, a senior international economist in Sydney at Westpac Banking, Australia’s second-largest lender, said in an Oct. 3 interview. “This effect will gradually fade, and alongside interest-rate cuts in Asia, we will see Asian currencies weaken.”
As demand from developed nations has dwindled, Asian exports have declined over the past few months. Shipments from Taiwan, which account for about two-thirds of the island’s economy, fell for a sixth month in August, sliding 4.2 percent, official data show. South Korean overseas sales are equivalent to about half of the nation’s gross domestic product and decreased 1.8 percent in September, a third monthly decline. Thai exports fell for a third month in August, down 7 percent from a year earlier.
Nick Bennenbroek, head of foreign-exchange strategy at Wells Fargo, the largest U.S. bank by market value, said Asian currencies can finish stronger this year ahead of a pickup in regional economic growth in 2013.
“We see global economic growth remaining soft in the fourth quarter, though potentially bottoming out in the Asian region,” said New York-based Bennenbroek. “We see hints that growth in China and India may be nearing a trough,” he said, adding that the Philippine and Malaysian economies remained resilient.
‘Sturdy Economic Growth’
GDP in the Philippines advanced 5.9 percent in the second quarter, while Malaysia’s rose 5.4 percent, beating the median forecasts in Bloomberg surveys for increases of 5.5 and 4.6 percent, respectively. The Philippines has a benchmark interest rate of 3.75 percent and Malaysia’s is 3 percent, compared with a maximum of 0.25 percent in Japan and the U.S.
“The peso and the ringgit are two of our favored Asian currencies,” Bennenbroek said. “Considering the underwhelming economic performance of the major economies and the monetary policy stance of the major central banks, we see the sturdy economic growth and steady interest-rate outlooks for Malaysia and the Philippines as supportive for those currencies.”