Southeast Asian currencies firmer against Singapore dollar

Find out why the local currency is currently viewed as a laggard in the region's appreciation story.

DBS Group Research noted:

In Southeast Asia (SEA), most exchange rates, especially the Thai baht (THB) and Philippine peso (PHP), have appreciated against the Singapore dollar (SGD) after the Japan's general election in mid-December.

To a large extent, this was attributed to the close correlation between USD/SGD and the benchmark DXY (USD) index, which had appreciated on a weaker Japanese yen (JPY) and the euro returning some of its November-December gains. USD/SGD has been largely trapped between 1.2160 and 1.2330; this consolidation started shortly before the announcement of QE3 last September.

Fundamentally, the underperformance of the SGD in the region was also attributed to the growth deficit of the Singapore economy against its relatively stronger SEA counterparts. It did not help that the republic's policymakers maintained a cautious tone on the outlook for 2013; the official growth forecast for the Singapore economy is 1-3% this year.

The Singapore stock market, while firmer on the economy defying technical recession calls, has yet to surpass its post-2008 crisis high. When it does, sentiment will probably improve for the SGD on the back of an upgrade in the growth outlook. Meanwhile, the SGD is viewed as a laggard in the region's appreciation story.

In Thailand, the central bank is expected to upgrade its 4.7% growth forecast for 2013 when it releases its new outlook on January 18. The policy rate was held steady at 2.75% yesterday on expectation that the fourth quarter was stronger-than- expected, with a gradually improving global economic climate augmenting domestic demand in 2013. FYI, Thai stocks have risen to levels not seen since 1995, before the Asian financial crisis.

The underlying strength of the Philippine peso was best reflected by both its stock market and foreign reserves continuing to shoot for record highs. This was in spite of measures put in place to discourage currency speculation in the non-deliverable forward market.

Notwithstanding the Eurozone crisis, real GDP growth has accelerated to 6.5% in the first three quarters of 2012 compared to 3.7% in 2011. Export recovery story came early to the Philippines; growth returned to positive territory since the first quarter of 2012. The central bank has cut interest rates to 3.50% from 4.50% last year to counter the appreciation pressure from ultra-loose monetary policies in the advanced economies.