(Bloomberg) — Asian currencies rose to their highest level in seven months as easing concerns about a U.S. recession, expectations of Federal Reserve rate cuts next month and an improving domestic environment lifted sentiment in the region.
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The Bloomberg Asia Dollar Index rose as much as 0.6% on Monday to its highest level since January. The South Korean won and Malaysian ringgit led the regional gains on optimistic growth prospects, while the Thai baht rose on easing political tensions.
“It feels like a Goldilocks scenario, with U.S. recession fears easing while growth momentum in the region remains subdued,” said Christopher Wong, a currency strategist at Oversea-Chinese Banking Corp. “There is room for Asian ex-Japanese currencies to recover against a backdrop of developed market central banks largely on an easing bias.”
The ringgit rose as much as 1.5% to 4.3678 per dollar, the strongest gain since February 2023. On Friday, the country reported a stronger-than-expected rise in second-quarter gross domestic product from a year earlier, while global funds pumped the most money into the stock market since June.
The baht rose to 34.409 per dollar, its highest level since January, after Paetongtarn Shinawatra secured enough votes in parliament on Friday to become Thailand’s next prime minister.
While her appointment helped quell concerns about a prolonged political vacuum after her predecessor was ousted by a Constitutional Court, the currency could face a bumpier path amid reports the new government could scrap a $14 billion digital currency distribution program. The new government’s relationship with the Bank of Thailand will also be in the spotlight again due to the new prime minister’s past criticism of the central bank.
Economists at Goldman Sachs Group Inc. over the weekend lowered the probability of a U.S. recession in the coming year to 20% from 25%, citing better-than-expected U.S. retail sales and jobless claims last week. They also said they were “more confident” the Fed would cut interest rates by 25 basis points at its September policy meeting.
Easing concerns about a recession in the world’s largest economy are positive for Asia’s export-oriented nations. The South Korean won rose 1.5 percent to 1,331.35, its highest level since March. The Philippine peso rose 1 percent to 56.66 per dollar, its biggest gain since November.
The yen rose as much as 1.2% to 145.87 per dollar as traders waited to see whether Bank of Japan Governor Kazuo Ueda would hint at the direction of the central bank’s rate hike during his appearance before parliament on Aug. 23.
The Bloomberg Dollar Spot Index fell 0.3% as traders awaited Fed Chair 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 U.S. currency showed traders divided over which direction to hedge against after spending most of the year paying up on bets on a stronger dollar.
Regional shares also rose on Monday, with the benchmark MSCI Asia Pacific Index rising almost 1% to close at its highest level in a month.
“The market is projecting 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 money to Asian stocks, particularly those in India, Indonesia and Malaysia.
–With assistance from Winnie Hsu and George Lei.
(Constantly updated on market movements.)
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