Asian Currencies to Fall on G-20, Stocks, Bank of America Says

By David Yong

April 1 (Bloomberg) -- Asian currencies may decline this month as the “global environment becomes more uncertain and less conducive for risk appetite,” according to Bank of America Securities-Merrill Lynch analysts.

A poor response to the international financial crisis from the Group of 20 leaders tomorrow may support “cautious” dollar bids, especially versus South Korea’s won, Taiwan’s dollar, Singapore’s dollar and Malaysia’s ringgit, New York-based Daniel Tenengauzer, head of currency strategy, wrote in a research note yesterday. A rally in U.S. stocks in March will probably reverse course because the gains weren’t accompanied by lower volatility and a reduction in credit risk, he said.

“We are looking for some disappointment in the G-20 outcome and the U.S. equities to support a shift back into the U.S. dollar,” Tenengauzer said. “Key global and economic events” may support the dollar and “another bad U.S. jobs report might accelerate this shift,” he said.

The won may weaken 4.4 percent to 1,450 per dollar by the end of June before recovering to 1,350 in the third quarter, according to the report. The ringgit may drop 0.3 percent to 3.6600, and reach 3.7000 by September, as politics deter the government from focusing on fixing the economy. Prime Minister Abdullah Ahmad Badawi plans to resign tomorrow to be replaced by deputy Najib Razak. The nation in April holds three by-elections.

‘Equity-Market Reversal’

Singapore’s dollar may stay above S$1.51 against the greenback as the monetary authority leans toward a neutral-to- loose policy by re-centering its currency band lower at its semi- annual review this month, the report said.

G-20 leaders will meet in London to discuss plans to restore global demand and resolve the financial and economic crisis, a Japanese Finance Ministry official said last week. Japan’s economic slump deepened as exports and manufacturers’ sentiment plunged to records. The U.S. said it’s prepared to let automakers General Motors and Chrysler LLC enter bankruptcy to revive the industry.

All of Asia’s 10 most-traded currencies weakened against the dollar in the first quarter, led by a 7.2 percent loss in the Korean won. Asian economies excluding Japan will expand 3.4 percent this year, the slowest pace since 1998, the Manila-based Asian Development Bank said in a report yesterday. That’s less than half its September estimate of 7.2 percent.

The Standard & Poor’s 500 Index rallied 8.5 percent in March, the best month since October 2002. Those gains will reverse because it wasn’t confirmed by declines in the volatility index, the so-called TED spread, which measures the difference between what banks and the Treasury pay to borrow money for three months, and corporate bond spreads, the report said.

“We are still looking for equity market reversal to be one driver of the next leg up in the U.S. dollar,” Tenengauzer said.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.