The Chinese yuan firmed to its strongest level in six months on Tuesday, leading most other Asian currencies higher, as the US Treasury Department removed its designation of China as a currency manipulator.
The yuan strengthened as much as 0.4% to 6.8661 per dollar and was poised for its sixth straight session of gains. Monday's announcement comes ahead of the signing of a Phase 1 trade deal between the United States and China due on Jan. 15, expected to ease tensions between the two countries.
"While there had been little changes to Asia economies' participation to the US FX report watchlist, this lifting of China's currency manipulator label may see to some relief for USD/Asian declines which would be beneficial to regional markets," said Jingyi Pan, market strategist at IG.
The US Treasury report cited continued concerns about the currency practices of nine other countries, including Malaysia, Singapore and South Korea.
The South Korean won advanced 0.2%, while the Malaysian ringgit and the Singapore dollar were little changed.
Taiwan's dollar was up 0.2% even though the US report said the country was close to triggering thresholds to be added to the currency monitoring list. A senior official of Taiwan's central bank told Reuters on Tuesday that the bank has never used swaps to intervene in the currency market, after the Treasury Department cited an analyst report suggesting the island was doing so. Adding to the cheer in Asian markets, China's trade data for December beat forecasts with exports rising for the first time since July 2019 and imports rising 16.3% from a year earlier.
The Thai baht pared losses from a decline of 0.3% earlier in the session, after the Bank of Thailand's (BOT) briefing ended with no surprises. A deputy central bank governor said on Tuesday that BoT is still concerned about the strength of the baht and is ready to take further action if necessary. Baht's outperformance is a thorn in the side of the authorities as this is inconsistent with weak macro conditions, said Radhika Rao, economist at DBS Group. The unit was the best performing currency in Asia last year, advancing about 8% against the dollar.