Asian currencies saw significant gains against the US dollar on Monday as concerns about a potential US recession eased and expectations for a Federal Reserve rate cut in September grew.
Goldman Sachs economists lowered the probability of a US recession in the next year to 20% from 25%, citing better-than-expected US retail sales and jobless claims data.
This improved outlook has increased investor confidence that the Fed will reduce interest rates by 25 basis points at its September policy meeting.
Indian Rupee hits two-week high
The Indian rupee rose to its highest level in nearly two weeks as the dollar index declined to its lowest point in six months.
By 12:22 pm IST, the rupee was trading at 83.92, up 0.02% from its previous close of 83.94 on Friday.
The rupee had earlier reached 83.85, its highest level since August 6.
MUFG Bank noted that with US macroeconomic data showing disinflation and resilient growth, Federal Reserve Chair Jerome Powell might signal a rate cut at the September FOMC meeting.
Yuan rebounds amid Dollar weakness
The Chinese yuan climbed as high as 7.1437 per dollar during morning trade and was last about 0.2% firmer at 7.1444.
The weakening of the dollar has helped the yuan rebound to the middle of its daily trading band after being stuck at the lower end for months due to a bleak economic outlook.
South Korean Won and Malaysian Ringgit lead gains
According to Bloomberg, the Bloomberg Asia Dollar Index rose by 0.6% on Monday, reaching its highest level since January. The South Korean won and Malaysian ringgit led the regional advance, driven by positive growth prospects, while the Thai baht also saw gains amid easing political tensions.
The Malaysian ringgit rose by as much as 1.5% to 4.3678 per dollar, the strongest since February 2023. This rise followed a stronger-than-expected increase in Malaysia’s second-quarter GDP and a significant influx of global funds into its stock market.
The Thai baht extended its gains to 34.409 per dollar, the highest since January, after Paetongtarn Shinawatra secured enough votes in parliament to become the next Thai prime minister. Her appointment has alleviated concerns of a prolonged political vacuum.
“It feels like a Goldilocks scenario, where US recession fears fade while growth momentum in the region remains moderate,” Christopher Wong, a foreign-exchange strategist at Oversea-Chinese Banking Corp. told Bloomberg.
“There is room for Asia ex-Japan currencies to recover against a backdrop of developed-market central banks largely on an easing bias.”
Japanese Yen appreciates on BoJ rate hike expectations
Along with the weakening of the USD following heightened expectations for a September rate cut, the JPY also factored in an expected increase in rate by the Bank of Japan.
The Japanese yen appreciated for the second consecutive day against the US dollar, driven by hawkish sentiment surrounding the Bank of Japan (BoJ).
Recent data showing growth in Japan’s second-quarter GDP has bolstered expectations for an interest rate hike by the BoJ in the near term.
Japan’s Machinery Orders, a key indicator of capital expenditure, increased by 2.1% month-on-month in June, surpassing the forecasted 1.1% rise. Markets are now closely watching the upcoming Japanese inflation figures for further insight into the BoJ’s monetary policy direction.
All eyes on Jackson Hole symposium
Traders now wait for Fed chair Jerome Powell’s speech at Jackson Hole symposium later this week to gather more clues about rate cuts. The Street will be looking for the Fed Chairman’s comments to hint at a possible rate cut in September following the release of July’s in-line CPI inflation data.
The Jackson Hole Symposium is an annual economic conference hosted by the Federal Reserve Bank of Kansas City. It is held in Jackson Hole, Wyoming, and brings together central bankers, economists, policymakers, academics, and financial market participants from around the world.
Federal Reserve Chair and other influential central bankers often use this forum to signal future monetary policy directions which often sets the ton for future monetary policy decisions.
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