Most Asian currencies firmed on Thursday as dollar extended its overnight losses following US Federal Reserve Chairman Jerome Powell's dovish remarks that interest rates were just below neutral. Powell's view represents a significant departure from comments in October when he said rates were a "long way from neutral at this point".
"If softer Fed expectations for 2019 persist and actualise going forward, we expect the Asian bond and equities to become relatively more attractive. The IDR and INR, and to a lesser extent THB, may be more favoured given the rising real yield environment in these economies," said OCBC analysts in a note.
The Indonesian rupiah topped the gainers, strengthening as much as 1.3 percent to 14,333 against the dollar to touch a four-month high. The Indian rupee firmed as much as 0.9 percent to 69.96 against the dollar, its highest level since Aug. 27, 2018.
The Philippine peso and the Korean won gained by up to 0.6 percent and 0.5 percent respectively, while the Thai baht firmed up to 0.4 percent. The cheerful reaction to Powell's comments in the regional currency markets notwithstanding, the focus remains on the G20 summit in Argentina, starting on Friday, where the presidents of the United States and China are expected to discuss their trade dispute, which has jolted markets worldwide for months now, particularly those in the emerging economies.
Though the hardliners in the US camp are against any concessions for China on the tariff front, some investors are optimistic that US President Donald Trump and China's President Xi Jinping can find some way to deescalate tensions. Stephen P. Innes, Head of Trading APAC at Oanda was doubtful that eanything meaningful would be achieved.
"The Xi-Trump summit event will provide little more than a photo op event," he said. The Bank of Korea will deliver its monetary policy decision on Friday. South Korea's central bank appears certain to raise the key interest rate for the first time in a year to calm the property market, a Reuters poll found, but would then stay on hold through next year. The won has fallen about 4.6 percent so far this year, lagging the likes of Philippine peso, Singapore dollar, the Thai baht and the Malaysian ringgit.
Short positions on most Asian currencies eased over the past two weeks, a Reuters poll showed on Thursday, on hopes for a thaw in US-China trade relations, and thanks to a sharp drop in crude prices, which benefits importers. Bearish bets on the Indonesian rupiah fell the most among regional peers as they declined to their lowest since May, according to a survey of 12 fund managers, currency traders and analysts.
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