June 10 (Bloomberg) -- Goldman Sachs Group Inc. cut its three-month forecasts for Asian currencies, predicting more modest appreciation for South Korea’s won and Malaysia’s ringgit on declines in the euro and a slowing Chinese economy.
A weaker euro has “a direct impact on the rates against the dollar for any country that cares at all about its trade- weighted exchange rate,” Michael Buchanan, chief Asia-Pacific economist in Hong Kong, said in a research note received today via e-mail. It also makes interest-rate increases less likely in Asia and deters investment in riskier assets, he wrote.
The U.S. bank weakened its projection for the won to 1,150 per dollar from 1,100, its ringgit forecast to 3.15 from 3.10 and its estimate for Indonesia’s rupiah to 9,000 from 8,800. Its prediction for India’s rupee was slashed to 47.50 from 44 to reflect the nation’s budget and current-account deficits.
Goldman yesterday reversed a forecast for the euro to rise, saying it will fall to $1.15 in three months as the probability of “continued policy mishaps” encourages investors to sell the 16-nation currency. The euro slumped 2.5 percent last week and traded at a four-year low of $1.1877 on June 7, less than the bank’s previous target of $1.35.
India’s rupee closed yesterday at 47.03 per dollar in Mumbai, 1.4 percent weaker than at the start of the month, and is the only Asian currency that Goldman predicts will weaken over the coming three months. The budget deficit amounted to 6.9 percent of gross domestic product in the fiscal year ended March 31, the highest proportion in 16 years, and Kotak Mahindra Bank Ltd. this month said the current-account deficit may widen to $30 billion in 2010 from $25.6 billion last year.
Rate Outlook
South Korea’s won was 1.3 percent weaker at 1,265.25 as of 11:20 a.m. in Seoul, slumping after Vice Finance Minister Yim Jong Yong said the government will “soon” announce plans to reduce volatility in capital flows. Goldman’s Buchanan said he has reined in his forecast for two interest-rate increases of a quarter of a percentage point each this year to just one, citing “the prospects of a slowdown in European growth.”
Three-month forecasts for the Philippine peso, Thai baht and Singapore dollar were lowered by Goldman to 44.50, 32.20 and S$1.38, respectively, versus the greenback from 43.60, 32.00 and S$1.36. The Taiwan dollar estimate was revised to NT$31.50 from NT$31.00, while projections for China’s yuan and the Hong Kong dollar were left unchanged at 6.74 and 7.80.
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