ASIAN currencies rallied to the highest in seven months as ebbing US recession concerns, bets on US Federal Reserve rate cuts next month and an improving domestic backdrop lifted sentiment in the region.
The Bloomberg Asia Dollar Index gained as much as 0.6 per cent on Monday (Aug 19) to the highest since January. The South Korean won and the Malaysian ringgit led the regional advance on upbeat growth prospects and the Thai baht rose on easing political tensions.
“It feels like a Goldilocks scenario, where US recession fears fade while growth momentum in the region remains moderate,” said Christopher Wong, a foreign-exchange strategist at OCBC. “There is room for Asia ex-Japan currencies to recover against a backdrop of developed-market central banks largely on an easing bias.”
The ringgit rose as much as 1.5 per cent to 4.3678 per US dollar, the strongest since February 2023. Last Friday, the nation reported a stronger-than-expected increase in second-quarter gross domestic product from the previous year, while global funds poured the most cash into its stock market since June.
The baht extended gains to 34.409 per dollar, the highest since January, after Paetongtarn Shinawatra – the 37-year-old daughter of former premier Thaksin Shinawatra – won enough votes in parliament last Friday to become the next Thai prime minister.
While her appointment helped to quell concern of a protracted political vacuum after her predecessor was ousted by a Constitutional Court, the currency could face a bumpier path ahead amid reports that the new government may scrap a controversial US$14 billion digital cash handout programme.
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The relationship between the new government and the Bank of Thailand will also be in focus again due to the new premier’s previous criticism of the central bank.
Goldman Sachs economists on the weekend lowered the probability of a US recession in the next year to 20 per cent from 25 per cent, citing last week’s better-than-expected US retail sales and jobless claims data. They also said they were “more confident” the Fed will cut interest rates by 25 basis points at their September policy meeting.
Easing concern of a recession in the world’s biggest economy is a positive for Asia’s export oriented nations. The South Korean won rallied 1.5 per cent to 1,331.35, the highest since March. The Philippine peso rallied 1 per cent to 56.66 per dollar, its biggest gain since November.
The yen advanced as much as 1.2 per cent to 145.87 per dollar as traders waited to see if Bank of Japan Governor Kazuo Ueda would provide hints on the central bank’s rate-hike path in his appearance in front of the parliament on Aug 23.
The Bloomberg Dollar Spot Index slipped 0.3 per cent as traders waited for Fed chairman Jerome Powell’s speech at the Jackson Hole symposium later this week for clues on rate cuts.
A gauge of aggregate demand for bullish call options over bearish puts on the US currency showed traders were split on what direction to hedge against, having paid up for bets on a stronger dollar for much of the year.
Regional equities also climbed on Monday, with the benchmark MSCI Asia Pacific Index rising almost 1% to head for its highest close in a month.
“The market is envisaging a brighter picture for Asian economies in the coming quarters,” said Tomo Kinoshita, global market strategist at Invesco Asset Management Japan. He expects investors to allocate more funds to Asian equities, especially to those in India, Indonesia and Malaysia. BLOOMBERG
