Yuan, Rupee Declines May Diverge from Won Gains, JPMorgan SaysJohn Detrixhe
China’s yuan may fall versus the dollar on slowing economic growth and a current-account financing shortfall may spark further rupee weakness, while South Korea’s currency has “supportive buffers,” according to JPMorgan Chase & Co.
Gross domestic product in China may expand about 7.4 percent this year and 7.2 percent in 2014, compared with a previous forecast of 7.6 percent and 7.7 percent, JPMorgan said today in a report. The world’s second-biggest-economy’s currency may “end mostly flat if not even slightly weaker than current levels,” on export weakness and slowing growth, the New York-based firm said.
The yuan rose 0.04 percent to 6.1385 per dollar today in Shanghai, China Foreign Exchange Trade System prices show. That is up from 6.2306 at the end of 2012.
India’s $25 billion current-account-deficit “has emerged because of a likely permanent worsening of the emerging-market funding landscape,” JPMorgan said. The gap developed as the U.S. Federal Reserve has debated winding down its asset purchase program that has driven down interest rates and pushed investors into higher yield assets, including those of emerging markets.
While policy makers in India have sought to stem currency depreciation through intervention and regulatory changes, “policy options are largely limited to helping manage a more orderly depreciation trend of the rupee rather than being able to stop or reverse the trend,” according to the report.
The rupee rose 0.6 percent to 59.35 per dollar after touching a record low of 61.2125 on July 8. The currency rebounded as the Reserve Bank of India announced measures to curb speculation and boost returns on local-currency assets. The currency may weaken to 62 by the end of the year, JPMorgan said.
The risk of outflows from South Korea’s won “is considerably lower compared to other Asian peers,” according to the JPMorgan report. The nation’s 12-month, rolling current-account surplus doubled, reaching its highest since 1999, the bank said.
The won, which trades at about 20 percent below the average of its Asian peers, will end the year “materially stronger” versus the dollar and yen, the report said.
The currency rose 0.4 percent to 1,121.75 per dollar in Seoul.