Most emerging Asian currencies rose against the dollar on Thursday, with the Korean won leading the gains after a surprise rate cut by the nation's central bank was seen by traders as positive move for a stuttering economy. The dollar index eased slightly in the wake of soft US housing market data and signs of renewed Sino-US trade tensions. "Investors are back focusing on worst-case scenarios despite overly accommodating central bank policies," said Stephen Innes, managing partner at Vanguard Markets Pte Ltd.
The spotlight fell on the Korean won, which added 0.4% against the dollar despite an unexpected rate cut by the Bank of Korea, which came at least a month earlier than many economists had predicted. A deepening trade row with Japan may have forced BOK's hand, given the Korean economy is already struggling to navigate the Sino-US tariff standoff. The currency did fall soon after the surprise rates decision, but rebounded as dovish comments from BOK Governor Lee Ju-yeol signalled policymakers' determination to revive the trade-reliant economy, which some traders said could help attract inflows.
"After the rate cut which surprised the market, the speech may have improved the sentiment because it confirmed the central bank's pro-growth stance," said Gao Qi, FX strategist at Scotiabank. "If the rate cut can boost assets like equities and bonds, it will attract inflows. In this scenario, it can help, particularly if the Fed remains dovish," he added.
The Federal Reserve is widely expected to cut rates at its month-end review as an insurance policy against rising economic risks, including from the bruising Sino-US trade war. The Indonesian rupiah added 0.3%, ahead of its central bank policy meeting due later. The majority of analysts in a Reuters poll predicted the Bank Indonesia (BI) is likely to begin an easing cycle with a rate cut on Thursday.
A separate Reuters poll showed investors cut bearish bets on most Asian units and went long on the rupiah for the first time in nearly three months as expectations of a Fed rate cut weakened prospects for the greenback. Long positions on the Thai baht receded, according to the poll. Strategists at DBS Group Research say catalysts for more baht appreciation have waned, mainly on the fading impact of factors such as a wider current account surplus and December's rate hike.
"Policymakers have signalled that Thailand may join the rest of the world in easing monetary policy... and consider new measures to encourage capital outflows," the DBS note said. "Hence, USD/THB has scope to return above 31 towards 32 again."
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