Australia's CBA sees China/East Asia growth supporting Asian currencies |
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Published
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Wed, 10 Jan 2007 06:39
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SYDNEY (XFN-ASIA) - Strong economic growth in China and East Asia is likely to see non-Japan Asian currencies well-supported over 2007, Commonwealth Bank of Australia senior foreign exchange strategist Richard Grace said in a currency outlook report for the year ahead.Grace also expects the Australian dollar to be maintain a firm tone, underpinned by continuing strong demand for commodities as the pace of global economic growth is sustained at an above average rate while interest rate yields will also favor the currency.International forecasting firm Consensus Economics sees 2007 global growth at 4.5 pct, down from 2006 growth at 5.1 pct, but still above the long-term average rate of growth at 3.8 pct.Grace said it is likely global economic growth will continue to de-couple from being heavily linked to growth in the US economy, noting that while the US economy remains an important driver of global growth, its contribution to global growth has been less than China's since 1990.'Consequently, if Chinese growth can remain firm, that will provide a solid base for firm global growth,' Grace said.As well, he said, global growth now appears more balanced between the three major regions -- North America, Europe and Asia -- than it has been at any time in the last 30 years.Grace said good growth momentum in Europe and Asia suggests a slowing in the US economy should not generate a major downturn in global economic activity.But, he said, there is not much evidence of a slowdown in the US, outside the housing sector, noting that the Federal Reserve continues to point out that the downturn in the housing sector has not spilled over into other sectors of the US economy.'It is therefore unlikely that the US housing downturn will significantly spill over into the international economy,' Grace said.He said it is also unlikely that there will be a sustained US dollar depreciation unless the Fed does move to cut rates as the Fed funds rate at its current level of 5.25 pct is a far too attractive deposit base for the world's reserve currency.Meanwhile, he said Asian currencies, together with the Australian dollar, are expect to find support because of the flow-on effects of China's gross domestic product growth which is likely to be maintained at 8-10 pct over the next 10 years.'There is little reason to doubt China will be able maintain such a high growth average given the determination by the Chinese authorities to shuffle growth from investment to consumption. A shuffle in growth will help extend the duration of the economic expansion,' Grace said.He said China's growth will keep overall growth in the Asian region firm lending support to non-Japan Asian currencies which will spill over into support for the Australian dollar.'When non-Japan Asian currencies are appreciating and Asian stock markets are performing well, the Australian dollar tends to outperform,' he said.bruce.hextall@xfn.com
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