Asian Currencies Gaining Strength

The United States Federal Reserves decision on Wednesday to pump in another US$600 billion ($769.98 billion) of cash into the ailing American economy is expected to continue to push Asian currencies higher in the medium term.

Analysts believe the Singapore dollar - which hit yet another record high against the US dollar yesterday - could keep rising against the greenback and this could mean that exporters will start to feel the pinch.

Since the start of the year, the Singapore dollar has appreciated 9.5 per cent against the greenback, while the Malaysian ringgit has risen 11.2 per cent and the Thai baht 12.4 per cent. BNP Paribas currency analyst Thio Chin Loo said the Fed's move to increase the timeframe for its quantitative easing stance to eight months and into the first half of the year would add further downward pressure on the US dollar.

"So clearly its language on the Fed statement was quite dovish, it kept open the probability of rates staying down for an extended period of time. So clearly we are into a very low yield US dollar environment and that clearly will be dollar negative," said Ms Thio.

This "extended period" will likely mean interest rates will remain low until the end of next year.

Brokerage OSK-DMG's chief economist Thomas Lam said: "Our forecast is that the first US rate hike could come at the end of next year, maybe at the December 2011 meeting, but the risk is that it could be some time in 2012."

The weak US dollar is bad news for exporters.

Singapore-based CEI Contract Manufacturing, a maker of printed circuit boards and other electronic components, is trying to adjust. CEI's financial controller Sia Chee Hoe said: "If the US dollar weakens too fast and too drastically that would be a concern to us." Mr Sia added that he hoped to see the US dollar not going below $1.25 by the middle of next year because "it could take a couple of percentage points off our bottom line."

In late London trading yesterday, the Singapore dollar was at a record $1.2825 against the greenback. Morgan Stanley forecasts the Singapore dollar appreciating to $1.20 by end-2011.

Meanwhile, about 45 minutes after the opening bell in New York yesterday, the Dow Jones Industrial Average was up 1.2 per cent at 11,350 on follow-through buying momentum from Wednesday after the Fed's move.

Earlier in Asia, India's Sensitive Index rose 2.1 per cent to close at 20,893, after touching an intraday record of 21,206.77. China's Shanghai Composite rose 1.9 per cent to 3,086, Hong Kong's Hang Seng gained 1.6 per cent to 24,535 and Japan's Nikkei surged 2.2 per cent to 9,358.