Asian central banks are running out of ammunition to fight their currencies’ biggest rally since 1998, paving the way for South Korea, Taiwan, Indonesia, Thailand and India to help lead foreign-exchange performance next year. The currencies are rising even as policy makers sell them, amassing record reserves on concern that too much appreciation will slow export-driven recoveries. Investors are fueling the rallies by seeking greater returns outside the U.S., where near- zero interest rates have made the dollar a favorite to sell in so-called carry trades.
With Asia leading the way out of the worst global recession since World War II, 15 of its 18 country stock indexes are beating the Standard & Poor’s 500 Index.
The lingering depreciation trend of the US dollar will present investment opportunities in gold and equities, but inflationary pressure is the price that must be paid, and it may compel the US Federal Reserve to jack up its now rock-bottom overnight rates.
Damage inflicted on US financial institutions has been estimated at more than US$1 trillion (Bt33.39 trillion), but they have collectively mobilised funds of only $750 billion, indicating not all the damage has been cleared yet and that the financial position of these institutions remains fragile, he said.
Economists expect the federal debts of the United States – its current-account and budget deficits – to jump from 70 per cent of gross domestic product to 100 per cent over the next two years.
Emerging markets, particularly in Asia, would become interesting places, because they would lead the economic recovery, while the US would remain an interesting market because of attractive asset prices.
Thai Bond Market Association executive vice president Ariya Tiranaprakij said the weakness of the dollar would lead the US to risk inflationary pressures, at which point the Fed might reverse its interest-rate trend.
She predicted the Thai interest rate would rise in the second half of next year at the earliest, because the Finance Ministry’s bond issue and borrowing plan to finance its 2010 budget deficit and the Thai Khemkhaeng project would not completely drain surplus liquidity from the financial system.