The Korean won and Indonesian rupiah are the most attractive currency bets in Asia against a weakening US dollar, say strategists.
“We think there’s going to be a weaker US dollar against Asian currencies and if there’s a break higher in the major currencies against the US dollar, which we think will happen, it will trigger more dollar weakness against emerging markets and Asian currencies,” says David Mann, senior foreign exchange strategist at Standard Chartered in Hong Kong.
“If there is any rebound in the US dollar, we think it’s going to be quite shallow because we think a lot of people are still looking to put longer-term positions on.”
The Korean won is a strategist favourite because it has recovered from craterous lows and is set to strengthen further. “The end of the week was very bullish for the Korean won, which closed below W1,230 [to the US dollar], which we haven’t seen since September 2008,” says Mann.
The currency notably suffered against the US dollar during the credit crisis and was among the weakest Asian currencies, but it has been supported by a number of positive factors in recent months.
The Korean economy has held up better than many of its peers, and it grew at 2.3% during the second quarter from the last three months, the fastest pace in more than five years. It is also no longer pressured by the lack of US dollars in its economy, as the sovereign, banks and corporates have managed to sell debt internationally. South Korean issuance has made up about 50% of total debt sales in Asia ex-Japan this year.
Investors might find an attractive entry level in the coming weeks. “Short-term wise, the moving average is clustered around W1,260 and that’s probably the best opportunity for investors to get into the won,” suggests Mann.
The Indonesian rupiah is also likely to rise strongly against the US dollar in the months ahead because it is less sensitive to global growth, but at the same time will benefit from improving sentiment. The currency traded at Rp9,930 against the US dollar on July 31.
“Indonesia’s consumption sector is much stronger and its exports aren’t really reliant on the US,” says Kelvin Lau, a research analyst at Taifook Securities in Hong Kong
Mann adds: “If the rupiah can test 10,000 against the US dollar again, it would be a good level. That was a good psychological support which is now a good psychological resistance.”