Morgan Stanley is Bullish on Asian Currencies

Monday, February 20, 2006 | 09:03 AM

Today's Currency Outlook from Morgan Stanley "reiterates our call that USD/Asia will show a definitive downtrend in 2006." 

Why? "The Fed is not yet done with its tightening campaign and could help support the dollar, particularly against the JPY. However, as the global recovery matures and broadens, we believe Asia will be a major beneficiary. The Fed and USD/JPY may temporarily disrupt this downtrend, but will not prevent or reverse it."

The report highlights several points:

Point 1.   CNY and JPY are the two remaining structural tension points in the currency space, as they are undervalued. 

Point 2.   Global growth is very robust.

Point 3.   The official reserves of several countries in Asia have reached or are approaching ‘saturation’ levels. 

Point 4.   Currency politics from the US are heating up.

Point 5.   China likely to be ready to impart more currency variability in USD/CNY.

Lastly, the Fed and USD/JPY Will Disturb, Not Reverse this Trend

Bottom Line: "We continue to believe USD/Asia should show a distinct downtrend this year.  Robust global growth, mispriced JPY and CNY, saturating official reserves, and currency politics are some of the drivers we see propelling the Asian currencies higher."


Note that I am not a currency trader (far from it) but I watch currencies as part of my macro overview. I recall a little incident with USD and a certain Treasury Secretary causing a little commotion about 19 or so years ago . . .

See also: U.S. Weighs Harder Line With China on Yuan


Asian Currencies Poised to Appreciate in 2006
Stephen L. Jen and Luca Bindelli and Charles St-Arnaud (all in London)
Morgan Stanley Economic Research, Feb 20, 2006

Monday, February 20, 2006 | 09:03 AM | Permalink | Comments (8) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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I hope MS is wrong. I do believe their conclusions are highly inaccurate. Would Robert "Beefy Dollar" Rubin agree with their conclusions? If the dollar falls, ain't nothing but more rate hikes and a slower global economy going to come to pass. Can you say more inflation via imported goods? More inflation due to reduced foreign appetite to invest in American capital markets? Reduced capital flows to developing countries? More risk and instability in those third world economies because if it? Bottom line is a weak dollar will surely cap global growth and cause more inflation. Those who say it helps exporters are definitely are definitely guilty of an incomplete sentence.

I hope the politicians will refrain from saying and/or doing things that have unforeseen second and third order disruptions. Not that fiscal irresponsibility helps anything.

Posted by: B | Feb 20, 2006 10:53:00 AM

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