Source: Zhitong Finance
Bank of America recently published a research report stating that it is bearish on a range of Asian currencies and is neutral on other currencies because the investment bank believes this is the beginning of an “era of chaos.”
The Bank of America stated in its report that “we are not optimistic about any Asian currency,” and many currencies have been affected by the delay in the Federal Reserve's easing cycle and the continued strengthening of the US dollar.
The investment bank listed Asian currencies, including the Korean won, Taiwan dollar, Thai baht, and Vietnamese dong, in a bearish category.
“Neutral” currencies include the Hong Kong dollar, Indonesian rupiah, Indian rupee, Malaysian ringgit, Philippine peso, and Singapore dollar.
won
Bank of America said South Korea's future “changed significantly” after the Federal Reserve delayed the timing of interest rate cuts and geopolitical risks in the Middle East became major adverse factors.
Bank of America economists wrote, “So far this year, we have seen large inflows into the Korean stock market, but as the global stock market is getting rid of these two risks, these inflows are beginning to reverse.”
The exchange rate of the won against the US dollar recently fell to an 18-month low of 1389.5 won per dollar. The governor of the Bank of Korea called the won “excessive” fluctuation and said the central bank would intervene if necessary.
Bank of America economists say the won is currently overvalued compared to the fair value of 1 US dollar to 1,417 won.
New Taiwan dollar
Bank of America still has a negative view of the Taiwan dollar in view of the large outflow of capital from the stock market and the further liquidation of no-principal forward foreign exchange (NDF) hedging positions by life insurance companies. According to reports, NDF is a currency derivatives contract that establishes a settlement between the current spot exchange rate and the contract exchange rate.
Currently, the exchange rate of the Taiwan dollar against the US dollar is hovering around NT$32.6 per US dollar.
Vietnamese dong and Thai baht
Currently, the exchange rate of Vietnamese dong to the US dollar is about 25,448 VND per US dollar, and has depreciated by nearly 5% since this year.
Bank of America said that what further complicates the impact of the Federal Reserve's delay in interest rate cuts is Vietnam's political instability and the plight of the real estate industry after the resignation of the second president within two years. The bank said that these negative factors have stimulated domestic demand for dollars and gold.
The report said, “We revised our estimates. It is expected that by the end of the second quarter, the depreciation pressure on the Vietnamese dong will drop further to 25,600 VND per dollar. By the end of the year, USD/VND will eventually reach 25,700.”
The Bank of America said that due to rising oil prices and freight costs, the Thai baht is also vulnerable to geopolitical tension. The agency raised the forecast for the exchange rate of the Thai baht to the US dollar until the end of this year to 37 baht per dollar.
Notably, the investment bank did not mention yen in the report. Currently, the exchange rate of the yen against the US dollar is hovering near a 34-year low. Since the Bank of Japan raised interest rates in March this year, the yen has been struggling and has fallen below the 1 dollar to 150 yen mark.