Asian currencies surged to their highest levels in seven months, propelled by waning concerns of a US recession, anticipations of Federal Reserve rate cuts next month, and improving domestic conditions, fostering a positive sentiment across the region. The Bloomberg Asia Dollar Index soared by as much as 0.6% on Monday, marking its peak since January, with the South Korean won and the Malaysian ringgit leading the charge on optimistic growth outlooks, while the Thai baht climbed amid easing political tensions.
Christopher Wong, a foreign-exchange strategist at Oversea-Chinese Banking Corp, described the current market environment as akin to a “Goldilocks scenario,” where fears of a US recession subside while regional growth dynamics remain steady. He noted the potential for Asian currencies excluding Japan to rebound against a backdrop of developed-market central banks largely leaning towards easing policies.
The Malaysian ringgit surged by 1.5% to 4.3678 per dollar, hitting its strongest level since February 2023, following the nation’s report of a robust increase in second-quarter gross domestic product compared to the previous year. Concurrently, global funds flowed into the country’s stock market at a notable pace, marking the most substantial inflow since June.
In Thailand, the baht continued its ascent, reaching 34.409 per dollar, the highest since January, after Paetongtarn Shinawatra secured enough votes in parliament on Friday to assume the role of the next Thai prime minister. Shinawatra’s appointment alleviated concerns of a prolonged political vacuum post her predecessor’s ousting by the Constitutional Court. However, uncertainties loom ahead as reports suggest the new government might scrap a $14 billion digital cash handout initiative. Furthermore, attention is drawn towards the relationship between the new administration and the Bank of Thailand, given the premier’s past criticisms of the central bank.
Goldman Sachs Group Inc. economists revised down the likelihood of a US recession in the next year to 20% from 25%, citing recent positive US retail sales and jobless claims data. They also expressed increased confidence in a 25 basis points interest rate cut by the Fed at their September policy meeting.
The improved outlook for the world’s largest economy serves as a boon for Asia’s export-driven nations. The South Korean won surged by 1.5% to 1,331.35, reaching its highest level since March, while the Philippine peso rallied by 1% to 56.66 per dollar, marking its most significant gain since November.
As traders awaited Bank of Japan Governor Kazuo Ueda’s remarks on the central bank’s rate trajectory, the yen strengthened by up to 1.2% to 145.87 per dollar. The focus also turned towards Fed Chair Jerome Powell’s upcoming speech at the Jackson Hole symposium for insights on potential rate cuts, reflected in the Bloomberg Dollar Spot Index slipping by 0.3%.
The upbeat market sentiment extended to regional equities, with the benchmark MSCI Asia Pacific Index climbing nearly 1%, poised for its highest close in a month. Tomo Kinoshita, global market strategist at Invesco Asset Management Japan, anticipates a brighter outlook for Asian economies in the following quarters, expecting heightened investor interest in Asian equities, particularly in India, Indonesia, and Malaysia.
