Asian Currencies Look Even Brighter. By Nicholas Hastings

In an uncertain world, there is always the hope of eastern promise.

In fact, with speculation over a Chinese revaluation rising by the day, the prospect of that eastern promise grows ever brighter.

"A yuan revaluation will add to the conviction that Asia can appreciate against the dollar even in a stronger dollar environment versus the euro," is how the currency research team at The Royal Bank of Scotland summed up the outlook for currencies such as the Korean won, the Malaysian ringgit, the Indian rupee and the Philippine peso.

Some of these currencies have already rallied by as much as 6% against the dollar in the last four months or so.

See the recent rise in the Korean won against the dollar:


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However, as The Royal Bank of Scotland team said, they are likely to get another fillip as the market looks for the Chinese yuan to become more competitive.

The boost this will provide to the exports of these countries is already whetting appetites. Last Friday, the Indonesian Palm Oil Association was among those singing the virtues of such a move.

In itself a Chinese revaluation is certainly good news that will boost growth in the region and attract even more support for these currencies.

However, the timing of the Chinese move could prove even more auspicious.

First, there is the continued fiscal turmoil in Europe, which shows little sign of subsiding.

Greece may have reduced tensions at the end of last week by reporting a sharp fall in its first-quarter deficit.

However, few analysts are convinced the crisis is over.

Far from it. There still remains a high risk that Greece will be forced to draw on the rescue package it recently negotiated with the European Union and the International Monetary Fund.

The problem is that the terms of any such funding remain far from clear, with Germany still likely to face constitutional problems if it makes any attempt to bail Greece out on concessional terms.

This should ensure continued downward pressure on the euro against the dollar, even though appetite for the U.S. currency itself isn't much higher.

The dollar has faced a series of false dawns as financial markets have built up their hopes for a U.S. recovery only to have them dashed.

The latest disappointment came last week when Fed Chairman Ben Bernanke himself poured cold water on speculation over higher U.S. interest rates by warning that the recovery remains fragile and that the Fed isn't about to budge.

In the past, such doubts would have sent investors scurrying back into safe havens, such as the dollar and the yen, as they pulled back from riskier currencies.

However, there is still a residual appetite for risk, evident in the firm performance of many emerging markets in recent months, suggesting investors are still willing to take some chances.

If that is the case, then those Asian currencies that stand to benefit from a yuan revaluation look well placed to rise as investors turn their sights to the east.

Early Monday in Europe, news that the European Union had agreed on a EUR30 billion package for Greece, with another EUR15 billion available from the International Monetary Fund, should boost market sentiment and play into the hands of Asian currencies even more.

The euro itself rallied sharply--making it to $1.3643 by 0745 GMT from $1.3495 late Friday in New York, according to EBS. The euro was also up at Y127.44 from Y125.64 as the dollar rose to Y93.42 from Y93.20.

How long the single currency can hang on to these gains could depend on the success of Greece's next attempt to raise funds in the market, with an auction to raise about EUR1.2 billion planned for Tuesday.