Rupee to Gain Fastest in '12 on Asia Inflow, Top Forecaster Says
Comment of the Day

January 16 2012

Commentary by Eoin Treacy

Rupee to Gain Fastest in '12 on Asia Inflow, Top Forecaster Says

This article by Lilian Karunungan and Yumi Teso for Bloomberg may be of interest to subscribers. Here is a section:
Asian currencies will rebound this year led by India's rupee, the worst performer in 2011, said Oversea-Chinese Banking Corp., the most-accurate forecaster for the region in the past six quarters.

The rupee will advance 5.1 percent to 50.5 per dollar by year-end followed by a 3.9 percent rally to 8,730 by Indonesia's rupiah, according to Singapore's second-largest bank. Barclays Capital, the second-best forecaster as measured by Bloomberg News, expects South Korea's won to outpace the other currencies, climbing 12 percent to 1,025.

"We'll probably see more signs of a nascent recovery perhaps sometime into the second quarter," said Emmanuel Ng, a strategist at OCBC in Singapore. "You should see more structural foundation for capital inflows into Asia."

A recovering U.S. economy and a shift in policy focus in China to bolster growth will support Asian currencies this year even as Europe struggles with its debt crisis, according to Barclays Capital, which predicts Malaysia's ringgit, the Thai baht, the rupee and the Taiwan dollar will rise more than 10 percent in 2012. ING Groep NV, the third-best forecaster, is less optimistic, expecting moves to range from a 4.1 percent gain in the rupee to a 0.4 percent decline in the rupiah.

Eoin Treacy's view The Asian Dollar Index broke below the 200-day MA in September and continues to range below it. The Index retested the lower side in December but has so far failed to rally convincingly. A sustained move above the MA, currently near 117, would be required to suggest a return to medium-term demand dominance.

The Indian Rupee deteriorated sharply between August and December on concerns over governance, growth and inflation. It hit a new low of R54 against the US Dollar a month ago but has since rallied to break the greenback's progression of higher reaction lows; suggesting at least a near-term Dollar peak. A sustained move above R53.50 would now be required to question additional scope for Rupee outperformance.

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