US dollar likely to remain well supported despite rescue package failure
Historically, the US dollar has seen rebounds in the wake of a crisis. So the greenback is not expected to soften despite the lack of approval for a US$700 billion rescue package on Capitol Hill.
With the lack of viable alternative currencies, experts said the US dollar will remain supported despite short-term reactions in the market.
Thio Chin Loo, senior FX and IR strategist, Asia, BNP Paribas, said: “The US dollar has not rallied across the board. What we saw in the previous rounds of crises was the dollar making some ground particularly against the European currencies, against high yielding currencies, against emerging market currencies, including Asian currencies.
“This is because there’s been a repatriation of flows back into the US, and there’s been a flight to quality in buying US treasuries.”
Looking ahead, the greenback is expected to remain well supported. One reason for this is that Asian currencies have lost some of their lustre as the region begins to feel the effects of a global economic slowdown.
The Australian and New Zealand dollars are not quite the stalwarts they used to be.
Vishnu Varathan, regional economist, Forecast Singapore, said: “We will see some residual strength in the Aussie (dollar) due to the flight of funds to safe haven bets, gold being one of them. There has been some correlation between gold and the Aussie.
“The Kiwi was recently supported by an upside surprise in their GDP numbers, but overall story for the Kiwi and the Aussie have not changed, and we do expect that they will give up their gains against the dollar over a period of time.”
Observers also believe that should a rescue package eventually emerge, there is little chance of the inflow of funds creating an inflation risk. The slow pace of money movement caused by the credit crunch should keep a lid on any oversupply of the US dollar that may emerge. - CNA/vm
Source : Channel NewsAsia - 30 Sept 2008
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