Most Asian currencies started the week higher as signs of slowing central bank interest rate hikes increased demand for riskier assets, while China vowing to step up policy support for the economy also aided regional sentiment.
Thailand’s baht gained the most among Asian currencies, logging a 0.4% rise, while the South Korean won rose 0.3%.
The US dollar index was about 0.2% lower in early Asia trading, pressured by a stronger yen after a report that Japan is set to amend its inflation target, a move that may give the central bank greater flexibility to tighten policy.
The Singapore dollar and Philippine peso also strengthened about 0.1% each.
“We lean more to the optimistic side of things as a case of slower pace of tightening seen across most central banks and China reopening should help to partially mitigate against global growth concerns,” said Christopher Wong, a currency strategist at OCBC.
Last week, the Federal Reserve delivered a 50 basis points (bps) hike to the lending rate, after four consecutive 75 bps hikes, indicating that the pace of tightening is likely to taper down, implying limited upside for the dollar.
Further aiding the mood in Asia, Chinese policymakers late on Friday promised greater support for the economy heading into the new year, in hopes of helping the economy pick up its pace after several months of strict COVID-19 restrictions weighed on the economy.
“The conference confirmed the recent pivot in COVID controls and housing policy, mitigating two main headwinds that held recovery back in 2022,” said analysts at Standard Chartered.
Asian stocks and currencies weighed by global recession woes
China’s yuan was about 0.1% lower.
The country is also expected to deliver a key interest rate decision on Tuesday, after keeping the rate steady for three straight months.
Asian yields ticked lower, with Singapore’s and Indonesia’s benchmark yields shedding 2.7 bps and 3.4 bps, respectively.
Thailand’s central bank said the local economy should continue its recovery, with a gradual rate increase in the offing, and weakness in the local currency is not affecting the economy much.
The baht has lost about 4% against the dollar so far in 2022, a smaller loss than most other Asian currencies, which have lost over 5%.
Equities across Asia were broadly lower, with markets in the Philippines logging a steep 1.5% decline, and Indonesia down 0.3%, as the mood on equities continued to be subdued after a bleak session on Wall Street on Friday, bogged down by recession fears.
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