Asian currencies, excluding Japan, are not expected to depreciate much further, due to slow but sure reform progress in the region's once-battered economies. However, the outlook is still far from certain for the Indonesian rupiah, economists say.
In its latest currency report, American Express Bank attributed recent pressure on the Southeast Asian currencies on "volatile politics, reform drift and low growth/still-weak financial sectors". Those factors have inhibited the rise of interest rates and hampered the stability of the currencies. But, overall, the economists expect that the "slow meltdown in Southeast Asian FX is probably nearly over".
Positive on peso
The Philippine peso has depreciated 9.75% against the dollar this year, largely due to rumours of increased capital controls and negative headlines affecting tourist revenue. But the Philippine central bank has successfully defended the peso by keeping interest rates high, which the economists believe will have a positive long-term influence. The bank predicts that in the next few weeks, the peso may rise to Ps45, on its way to a target of Ps46.50/60. The year-end target is forecast at Ps45.
Steady in Singapore
The economists see the 4.75% depreciation of the Singapore dollar (SGD) against the US dollar as controlled depreciation by the government. In the very near term, it is expected that the SGD will hold at S$1.75, with targets at the S$1.70/S$1.68 level.
China in control
The risk of a major devaluation of the Chinese renminbi is fading, due to the half-year GDP growth rate of 8.2%, increasing exports and domestic consumer levels, and business optimism over China's entry to the World Trade Organization. Fears of devaluation arose over widespread reports that the Chinese authorities were paving the way for a more flexible trading regime for the local currency. American Express forecasts the renminbi to be stable at Rmb8.28 for the next six months.
Rupiah reform-linked
In August, the Indonesian parliament will debate the performance of President Wahid Abdurrahman. A vote of confidence in his reform efforts could trigger an appreciation of the rupiah. American Express economists believe modest inflation, a current account surplus, GDP growth of around 3%, and the current undervaluation of the rupiah are likely to boost the local currency's performance. But, the economists warn: "The main risk is that Wahid is forced to leave soon."
Hong Kong and Malaysian pegs hold
Both the Hong Kong and the Malaysian dollar are likely to remain firmly pegged to the US dollar. Continued recovery in the region and China should keep the Hong Kong economy on a moderate-to-strong growth path. Malaysia's currency peg should stay in place for at least the next six months. The American Express economists predict that if the peg were removed, the robust growth (around 10%) in the Malaysian economy would likely cause the ringgit to sharply appreciate.
