Greek stability seen to boost Asian currencies

Markets have responded positively as Greek borrowing costs dropped to their lowest level since mid-February. This positive news is likely to move Asian currencies higher, notes Mitul Kotecha of Credit Agricole CIB.

  • 04 Mar 2010
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An improvement in risk appetite over Greece’s fiscal prospects is likely to boost Asian currencies which have been range-bound in recent weeks.

Greece announced a series of austerity measures yesterday (March 3), including a freeze on pensions, cuts in bonuses for government employees and rises in value added tax.

“The ball is now in the court of the European Union,” Mitul Kotecha, head of global FX strategy at Credit Agricole CIB, told asiamoney.com.

“Greece has done its part in announcing the measures, but the next big step is implementation, which is still a big risk politically. We are by no means out of the woods.”

Even though there are still uncertainties, markets have responded positively as Greek borrowing costs dropped to their lowest level since mid-February and the Europe traded higher against the US dollar.

This positive news is also likely to move Asian currencies higher. These have traded in a tight range in recent weeks, but have not experienced precipitous drops seen in the euro.

“It is partly because Asia is geographically, economically and strategically far from what’s happening in Greece and also that Asia is fundamentally more solid. Also, Asian currencies are partly driven by equity performances.”

Kotecha believes that this is a good time for short and long-term investors to be putting on positions. “The markets have been moving sideways in the last few weeks, but I think it’s providing good levels. You won’t get much better levels to buy these currencies.”

The most resilient this year have been the rupiah, the baht and the ringgit. Kotecha believes these defensive plays still offer good value and will appreciate further.

For those with greater risk appetite, the won and the rupee potentially offer more upside. “Although we haven’t seen big gains in these currencies so far this year, I believe that the outlook is still very bullish,” said Kotecha.

In contrast, the Singapore dollar has not been as resilient as its south-east Asian peers. “Given strengthening in other currencies you would have expected the Singapore dollar to be stronger, but I suppose it suits Singapore to have a weaker bias, given the importance of trade in the economy.”

But Kotecha believes that it will strengthen soon. “We expect to see some catch up there,” he stated.

  • 04 Mar 2010

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