Business

Saturday November 7, 2009

US dollar to continue to weaken in medium term

By YVONNE TAN


KUALA LUMPUR: The US dollar will continue to weaken in the medium term as the risk appetite of investors increase with global economies on the mend, said OCBC Bank (M) Bhd head of global treasury Gan Kok Kim.

“The US dollar will continue to weaken in the medium term as investors become more confident and start moving their money out of the safe haven (of the greenback) and into riskier, higher-yielding markets like emerging markets,” he told StarBizWeek after a OCBC-hosted talk entitled Hedging Foreign Exchange Rate Risk here yesterday.

The pace of the greenback’s weakening, however, “will not be as fast” in 2010 as this year unless the global economies recovered at a faster-than-expected rate, Gan said.

Year-to-date, the ringgit has strengthened as much as 2% against the US dollar. It rose 0.4% to 3.4075 per dollar in mid-afternoon trade yesterday.

Gan noted that the risk appetite for riskier assets such as lower-rated private debt securities (PDS) was slowly but surely picking up.

“Yes, demand is slowly returning. However, investors are generally still cautious with the memory of the economic crisis still fresh in their mind,” he said.

Generally, equity markets would be the first to react to a recovery, and credit markets would follow suit, he added.

Asked about OCBC’s treasury division, he said contribution to the bank’s overall profit was currently “significant”, without revealing figures. For the financial year ended Dec 31, 2008 (FY08), the bank’s net profit grew 20% to RM617mil from RM513mil in FY07 while revenue climbed 18% to RM1.54bil from RM1.31bil previously.

“We expect the division, the products of which deal with money market and foreign exchange instruments, to continue to perform well as trade starts to make a comeback and foreign exchange requirements pick up,” Gan said.

Earlier in the talk, internationally-renowned author Dr Heinz Riehl called on exporters and importers to pay greater attention to protecting the value of their foreign currency receivables and payables.

“Options, as opposed to forward contracts, offer greater opportunity for profit while protecting the customer against possible adverse foreign exchange rate changes,” he said.

Forward contracts while doing well to protect funds, stopped short of “harnessing” the opportunity to generate latent profits, Riehl said.

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