Allowing China's currency to move freely against the US dollar might cause other Asian currencies to appreciate against the US currency in the "short term" and then fall back, Forecast Ltd said in a report.
"It would not be surprising if a sudden yuan revaluation led to an overshoot" of some Asian currencies against the dollar, Craig Chan, head of Asian research at Forecast in Singapore, wrote in the report. Forecast is a unit of the London-based economic-research company 4Cast Ltd.
A possible yuan revaluation, expected by some analysts to come in at between 2.5 and 5 percent, might have only a "small" impact on trade and investment totals, Chan said.
The South Korean won may see the "most direct pressure" to gain because in 2003 its exports to China accounted for 18 percent of the total of China's imports, the largest in the region excluding Hong Kong and Japan, the report said.
The impact on the NT dollar may be the second-largest .Taiwan was the No. 2 exporter to China last year, accounting for 14.3 percent.
In Southeast Asia, where Singapore is likely to be the most-affected currency, the direct impact will be more limited, the report said.
"The main concern of a yuan revaluation in Southeast Asia and particularly Singapore is likely to be from the secondary impact and the risk of a Malaysian ringgit adjustment," Chan wrote.
"This is with Malaysia accounting for" 16.3 percent of Singapore's total trade, the report said.
The yuan has been pegged to the US currency since 1994 and valued at about 8.3 per dollar since 1995.
The pressure China faces to revalue its currency is political instead of economic, as the US trade deficit with China has bulged 50 percent in three years, reaching US$103 billion -- about a quarter of the total US deficit -- last year.
US manufacturers say a vastly undervalued yuan -- fixed at about 8.3 yuan to the dollar -- is making US goods too costly for the Chinese to buy and Chinese goods unfairly cheap in the US.
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