I have been on a research trip to China, India, Indonesia, and Korea over the last 3 weeks.
The key conclusion from these trips and from what we can observe in Singapore is that global negative factors will push USDAsia up in the near-term (see Figure 1 in attached report). However, in the medium-term fundamentals for Asian currency markets, with the exception of India, are positive.
In the next 3-4 months negative risk sentiment from EU fiscal adjustment, USD funding crunch risks impinging on capital flows, net portfolio outflows from the equity market, and potential concerns of a decline in trade finance will supersede current account surplus dynamics in China, Korea, and Singapore. India will continue to run current account deficits, while Indonesia will be posting very modest current account surpluses.
As a result, we reiterate or bearish views on Asian currencies into Q1 12 published on November 29, 2011 in FX Ringside: FX Outlook for 2012 and Key Themes.
Our Global Strategists are forecasting EURUSD at 1.25 in H1 12, weak risk sentiment into Q1 12, USD strength into Q1 12, and challenging 2012 global macroeconomic conditions.
On a medium-term perspective, we remain constructive on Asian currencies. From Q2 12, we expect USDAsia to fall as risk sentiment improves, some stabilization of EU fiscal policy materializes, USD liquidity improves, and the market starts focusing on Asia’s strong macroeconomic fundamentals.
Watch for our 2012 Asia FX Outlook report next week for further details and our top trade ideas.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/12/AsiaStrategyFocusCurrencyForecastDec2011.pdf
Skandinaviska Enskilda Banken AB