KUALA LUMPUR: Asian currencies are likely to depreciate against the US dollar in the second half of 2022 (2H2022) and potentially into 1H2023, RHB Investment Bank Bhd said.
The investment bank said the US Dollar Index (DXY Index) might trade in the 107-112 range in the fourth quarter (Q4) of 2022, versus its earlier assessment of 103-106.
“In 1H2023, the DXY Index could remain elevated with the balance of risks skewed towards the top end of the range hitting around 114-116,” it said in its Global Cross Asset Flows Tracker publication on Wednesday (Sept 14).
It said the UST2s10s (US Treasuries 2-year,10-year spreads) curve inversion would continue and hit negative 50 to negative 60 basis points (bps) in Q4 2022, with potential for further inversion in 1H2023, as markets reprice toward the view that the Federal Funds Rate would hit at least 4% in the next two quarters, if not higher; also as the US Treasuries 10-year yields fell to 2.8%-3.1% as global growth slowed.
“This is US dollar positive. In addition, the technical picture suggests that unless the DXY Index breaks below the key support level of around 107 on a sustained basis, the US dollar is headed north on a trend basis.
“Hence, both fundamental and technical factors suggest that the US dollar could remain elevated in the next two quarters, if not longer,” it said.
Therefore, RHB Investment Bank said it has revised upwards its US dollar/Indonesia rupiah, USD/Singapore dollar, US dollar/baht, and US dollar/Vietnamese dong pairs forecasts for the 2H2022 and 2023.
In its Sept 7 Global Cross Asset Flows Tracker publication, the investment bank revised its end-Q3 2022 US dollar/offshore Chinese yuan (CNH) forecast to seven, from 6.735, end-Q4 2022 forecast to 7.05 from 6.725, and 2023 forecast to 7.10 from 6.715.
Additionally, it revised the end-Q3 2022 US dollar/ringgit (USD/MYR) forecast to 4.52, from 4.40; and end-Q4 2022 to 4.55, from 4.35.
“Our end-2023 USD/MYR forecast was revised to 4.47, from 4.30. We also believe Asian exports will slow in 2H2022 and thus, this will also lead to Asian currencies weakening against the US dollar in 2H2022,” it added.
Source : The Edge Markets