Nearly all emerging Asian currencies firmed on Tuesday, with the Thai baht strengthening the most, as criticism of Federal Reserve rate hikes by US President Donald Trump dented the dollar. Trump said he was "not thrilled" with Federal Reserve Chairman Jerome Powell for raising interest rates, and that the central bank should help him boost the economy.
The dollar's slip came before anticipated talks between the United States and China, which many believe might ease trade disputes. "In the interim, there's not likely to be any trade related negative headlines, and that's why we're seeing the dollar softening," said Chang Wei Liang, FX strategist at Mizuho Bank.
"It's probably too early to say that the dollar will be easing dramatically from here but for now it does appear that the news flow is a bit more supportive of an interim retracement." Risk appetites have been lifted ahead of the Sino-US trade negotiations, meaning some Asian currencies saw stronger inflows. The fact that Turkish markets are closed for much of the week also helped stability, after fears of contagion from the lira's collapse caused large sell-offs last week.
The Thai baht shot up as much as 0.8 percent against the dollar. The Malaysian ringgit and the Chinese yuan also rose. China and Malaysia signed a memorandum of understanding on a bilateral currency swap agreement on Monday. Malaysian Prime Minister Mahathir Mohamad also said he believed China would sympathise with his country's "internal fiscal problems" as he seeks to renegotiate, or possibly cancel, more than $20 billion in Chinese-funded projects.
Philippine markets were closed for a holiday, and the peso edged lower in very muted trade. The Thai baht outperformed, touching a two-month high against the dollar. Thailand's GDP expanded at a slower pace in the second quarter, but the state planning agency kept its economic growth forecast for the year and also raised its exports projection.
Chang of Mizuho called the Q2 growth number "pretty good" as a moderation was expected. "Markets are reacting to the sustained growth momentum that we've seen in Q2, and if that carries on to the second half, then its very likely that the Bank of Thailand will be confident enough to begin normalising monetary policy," he added.
The central bank governor said on Monday Thailand cannot buck the global policy tightening trend but any interest rate hike will be gradual. He added that the need to continue "very accommodative" monetary policy was lessening, but the timing of a rate hike will be decided by the monetary policy committee. Thailand's benchmark rate has been kept at 1.50 percent since April 2015.
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