Stronger US dollar

PETALING JAYA: The greenback is expected to maintain an upward trend vis-a-vis major currencies on a gradual US economic recovery amid the political uncertainty surrounding the eurozone's sovereign debt crisis.

Investors have piled into safe-haven assets such as US Treasuries, where yields on benchmark 10-year notes and 30-year bonds have fallen following higher demand as concerns resurfaced over the eurozone crisis.

Forex strategists believe the US dollar would continue to show strength in the following months on “risk-off” trades (selling of equities, oil and gold and buying of US Treasuries) because of the political uncertainties in France and Greece as well as the uncertain growth outlook of major economies.

Maybank Investment Bank Bhd's Singapore-based forex research head Saktiandi Supaat said in an e-mail reply to StarBizWeek that the US dollar could see short windows of significant spurts with analysis suggesting a higher probability of an upward trend for the rest of the year.

He said the windows for these spurts were in June to mid-July, September to mid-October and December. “We think there is a high likelihood of seasonal spurts of US dollar strength if US growth remains status quo for the next eight months,” Saktiandi said.

He added that news to watch out for would be headlines on Greece and the run-up to French President-elect Francois Hollande's unveiling of economic plans as this could sustain US dollar strength into June.

Hollande promised higher taxes (75% for those earning one million euros and above) and increased spending while there have been considerable opposition to further austerity in Greece and other countries hit by the crisis.

Saktiandi said a major risk aversion scenario would be the contagion from a mixture of a Greek exit from the eurozone and Spanish banks' recapitalisation problems (the government has effectively taken control of the country's fourth largest lender amid a jump in the yields of Italian and Spanish sovereign bonds).

He said the ringgit would weaken in tandem with other currencies and could weaken further if the general election were held next month on domestic political uncertainty.

“Our current forecast is for a weakening of the ringgit from current 3.07 to around 3.10 levels by end-June before somewhat stabilising and falling towards 3.02 by year-end. This, of course, assumes the election transition/process turns out smoothly post elections if it happens in June,” Saktiandi said.

Hong Kong-based Societe Generale SA forex strategist Chong Wee Khoon said the greenback would broadly maintain its strength against other major trading currencies as there was now less cause for another round of quantitative easing.

He expects emerging Asia currencies to weaken under pressure with investors' flight to safe-haven assets while there were near-term risks for the yuan to weaken further in anticipation of weaker data.

“The weak April import data does not bode well for the growth outlook in China and also for the region,” Chong said. He added that the yuan's sharp appreciation in past years was likely drawing to a close with sideways drifting ahead.

Meanwhile, Oversea-Chinese Banking Corp Ltd analyst Barnabas Gan remains unfazed over the bearish trends for gold in the past two weeks. He expects gold prices to hit a year-end level of US$1,800 an ounce with fundamentals continuing to point towards higher prices in the medium to long term.

“In our view, the most important factor for higher gold prices is potentially higher gold demand from key gold consumers: India and China,” he said, adding that besides demand from these two countries, central banks from Mexico to Russia were still stocking up while low interest rates in the Group of 7 economies allowed for more upside in prices.

However, Gan admits that in the short term, there could be further downside in prices due to sustained risk-off sentiments with immediate support at US$1,522 an ounce.