The US dollar will continue to weaken next year and, contrary to what many people think, this will actually be good for the Asian region, according to ING Financial Markets' chief Asian strategist.
'Asia gains market share and export prices, i.e. what we can charge for our goods, also rises in an environment of a weak US dollar. For Asian economies, this is a very nice environment to be in,' Markus Rosgen said yesterday.
The key thing, he said, was that while Asian currencies were expected to appreciate against the US dollar in the coming year, they would see 'huge depreciation' against the euro, and the Australian and New Zealand dollars, given that most Asian economies were still linked to the United States currency.
Since the early 1980s, times of US dollar weakness on a trade-weighted basis had corresponded to peak strength in Asian equity markets relative to world markets, and vice versa, Mr Rosgen said, noting that the same trend was evident now.
While dollar weakness will be good for growth in the region, dollar weakness against Asian currencies will squeeze margins for local exporters because they will get less for their bucks when repatriating funds to the region.
'This is why we like the domestic side of the economy, and don't really like the export side,' he said.
