(Bloomberg) — Asian currencies rose to their highest in seven months on improving sentiment in the region on easing fears of a U.S. recession, expectations of a Federal Reserve interest rate cut next month and improving conditions at home.
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The Bloomberg Asia Dollar Index rose 0.6 percent on Monday to its highest since January, with the South Korean won and Malaysian ringgit leading the region's gains on brighter growth prospects, while the Thai baht strengthened on easing political tensions.
“This really seems like an ideal scenario, with regional growth momentum remaining modest while fears of a U.S. recession fade,” said Christopher Wong, FX strategist at Oversea-Chinese Banking Corp. “With developed market central banks leaning primarily toward easing, ex-Japanese Asian currencies have room to recover.”
The ringgit rose 1.5 percent to 4.3678 ringgits per dollar, its highest since February 2023. On Friday, the country reported better-than-expected second-quarter gross domestic product growth from a year earlier, prompting global funds to pump the most money into the country's stock market since June.
The baht rose to 34.409 baht per dollar, its highest since January, after Thailand's Pathongtar Shinawatra won enough votes in parliament on Friday to become the country's next prime minister.
Her appointment helped ease concerns about a long political vacuum after her predecessor was ousted by the Constitutional Court, but the currency may face a tougher road ahead amid reports the new government may scrap a $14 billion digital cash transfer program. Relations between the new government and the Bank of Thailand will also be back in the spotlight after the new prime minister previously criticized the central bank.
Economists at Goldman Sachs Group Inc. late last week lowered their chances of a U.S. recession over the next 12 months to 20% from 25% after better-than-expected U.S. retail sales and jobless claims data was released last week, and said they now have “increased confidence” the Fed will cut interest rates by 25 basis points at its September policy meeting.
Easing fears of a recession in the world's largest economy were a positive for export-oriented Asian countries. The South Korean won rose 1.5 percent to 1,331.35 won, its highest since March. The Philippine peso rose 1 percent to 56.66 pesos per dollar, its biggest increase since November.
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The yen rose 1.2 percent to 145.87 yen per dollar as traders waited to see whether Bank of Japan Governor Ueda Kazuo would give any indication of the central bank's path for raising interest rates when he speaks to parliament on Aug. 23.
The Bloomberg Dollar Spot Index fell 0.3% as traders await Fed Chairman Powell's speech at a symposium in Jackson Hole later this week for clues on a rate cut. A gauge of aggregate demand for bullish call and bearish put options on the greenback shows that traders who have bet against a stronger dollar for much of the year are divided on which direction to hedge.
Regional stocks also rose on Monday, with the benchmark MSCI Asia Pacific index rising nearly 1% to close at its highest in a month.
“The market expects the outlook for Asian economies to brighten in the coming quarters,” said Satoshi Kinoshita, global market strategist at Invesco Asset Management Japan, who expects investors to shift money to Asian stocks, particularly those of India, Indonesia and Malaysia.
–With assistance from Winnie Hsu and George Lei.
(Market trends will be updated as they occur.)
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