Most Asian currencies firmed against the US dollar on Monday, as regional equities gained following a rise in S&P futures, while the greenback slipped after US Congress signed a deal that will push budget deficits past $1 trillion annually. Asian share markets showed signs of recovery on Monday from a dramatic sell-off last week, though investors remained cautious ahead of US inflation data on Wednesday.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 1 percent, as S&P futures extended their bounce after a burst of buying on Wall Street on Friday. "The more positive close to US markets on Friday night has seen a bit of a relief coming through markets, so we are seeing a bit more of a retracement after last-week's sell-offs and that has been the main driver for Asian currencies, supported by the rise in Asian equities," said Khoon Goh, head of Asia research at ANZ Banking Group (Singapore).
"The US dollar weakening is also reflecting the fact that the US fiscal deficit is now set to widen, following the passsage of the recent budget deal, that's also helped to benefit Asian currencies."
The dollar index fell 0.3 percent against a basket of currencies on Monday. A brief US government shutdown ended on Friday after Congress passed and President Donald Trump signed into law a temporary spending deal expected to push budget deficits past $1 trillion annually. The Korean won led the gains among regional currencies as it strenghthened 0.8 percent, in tandem with the KOSPI stock index which rose 1.3 percent.
The Singapore dollar firmed 0.3 percent, its biggest intraday percentage gain in nearly three-weeks. Taiwanese dollar also strengthened 0.3 percent. Taiwan's benchmark stock index rose 1 percent on Monday, propped up by information technology stocks, after losing 6.8 percent last week.
The Thai baht firmed 0.3 percent, while the Malaysian ringgit strenghtned slightly. Bucking the trend in the region, the Chinese yuan slipped 0.1 percent. The recent strength in the yuan has sparked speculation that the People's Bank of China could reinstate the "counter-cyclical factor", a discretionary factor it introduced into the yuan midpoint formula last year to contain the currency's decline.
The Indian rupee followed the trend in the region, as it firmed 0.2 percent ahead of release of inflation data later in the day. Retail inflation in India is expected to have softened only slightly last month from a 17-month high hit in December, according to a Reuters poll, offering little relief to policymakers mindful of the tentative economic recovery. The Reserve Bank of India kept its key policy rates unchanged on Wednesday and retained its "neutral" stance in an attempt to maintain a delicate balancing act and nurture growth.
The Philippine peso weakened 0.3 percent, the most in the region, and was on track to extend losses to a third consecutive session. "The peso has weakened and that follows on from last week's record trade deficit that was reported, so the detoriating external position on the Philippines continues to weigh on the peso," ANZ's Goh said.
Trade data for December 2017 ensured the full-year trade deficit widened to a record of $29.8 billion as imports for the year jumped 10.2 percent, stoking concerns that its current account balance would deteriorate further and put more pressure on the already-weak peso.
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