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SINGAPORE : The US dollar's surge in the past two weeks has taken regional markets by surprise.
While the strengthening greenback raises hope for the flagging US economy, some analysts fear there is more bad news to come.
Slowing exports in Asia are likely to get a shot in the arm from the US dollar's recent surge.
The US dollar has risen against major Asian currencies including the Singapore dollar, Malaysian ringgit and Japanese yen by as much as 3 per cent in the past two weeks.
While this rise may spark cheer in the US, it spells bad news for markets in Asia. Analysts said weakening regional markets have been behind the US dollar's rise against Asian currencies.
Sim Moh Siong, director, Asia Pacific Economic and Market Analysis, Citicorp Investment Bank, said: "The driver behind the weaker regional currencies is the weakening regional outlook itself and when you factor that in, the net impact will be a small relief."
This is due to an expected slowdown in global demand, which means that cheaper Asian exports will not necessarily translate into a boost for economies.
Asian markets with a higher degree of openness, like Singapore, are likely to be more vulnerable to the global slowdown that could continue into next year.
Mr Sim said: "The good news is that it will not be a sharp slowdown. The bad news is that the slowdown will be a protracted one, so more of an elongated U, rather than a V shape recovery."
OCBC attributes the US dollar's sudden surge to major central banks in the region switching focus from tackling inflation to easing downside growth risks.
In the short term, the US dollar may see a technical correction, but it is likely to sustain its current strength over the next three to nine months.
Based on a forecast by OCBC, the greenback could hit 1.455 against the Singdollar by June next year. - CNA/ms
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