The Chinese yuan and the Malaysian ringgit were among the lead gainers among emerging Asian currencies on Tuesday, after investor sentiment received a boost from a string of promised measures in the region’s largest economy to stimulate growth.
The yuan strengthened as much as 0.6%, to trade at 7.141 per dollar, hitting its highest in about two weeks, while the ringgit followed closely with a 0.1% gain.
“The EM currency rally is being supported by the yuan after the Politburo meeting yesterday, because it signals some policy change in China and that there could be more stimulus packages going ahead,” Chief Asia FX Strategist Ken Cheung at Mizuho Bank said.
China’s top leaders said on Monday that they will step up policy support for the beleaguered economy, focusing on expanding domestic demand, boosting confidence and preventing risks.
“The execution and depth of these policies will be the real test. The financial markets will keenly watch how China manages to implement these directives,” Tommy Xie Dongming, an economist from OCBC wrote.
Other currencies such as the Singapore and Taiwan dollars gained about 0.1% each.
Additionally, investors are on watch for the upcoming US Federal Reserve meeting later this week, where a 25 basis point hike is widely expected before the central bank announces a pause in its aggressive rate hike cycle.
Asian FX, stocks fall as China data fails to lift markets, yuan drags
Separately, the Indonesia rupiah traded about 0.1% higher. The country’s central bank is set to announce its policy decision on Tuesday, with a pause is expected, which is likely to be extended till the end of the year.
Inflation in Southeast Asia’s largest economy eased in early July to its lowest in 14 months, while consumer prices in Singapore and Malaysia also tailed off, pointing to a smaller possibility of rate hikes.
“Bank Indonesia has one of the most credible cases for easing policy rates, but the central bank’s focus on rupiah stability means it is unlikely to contemplate any near-term easing,” analysts from Bank of America said in a research note.
“The worst of inflation is likely behind us, but upside risks remain. We expect ASEAN central banks to remain cautious,” they added.
The South Korean won rose marginally, after its economy grew faster than expected in the second quarter even as it warned of weaker consumer and business spending.
On the other hand, the Thai baht was subdued due to continued political uncertainty.
Shares in Shanghai, Taiwan, Malaysia and Phillipines gained between 0.6% and 1.8%.
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