Most emerging Asian currencies gained ground against a broadly weaker dollar on Thursday, as a slew of weak US economic data boosted chances the Federal Reserve will cut rates this month. The US trade deficit jumped in May while the protracted trade war between Washington and Beijing drove activity in the services sector to a two-year low in June, data showed on Wednesday, adding to signs of a slowdown in the world's largest economy.
The gloomy readings increased expectations that the Fed would loosen monetary policy to arrest a slowdown, boosting risk-sensitive assets and denting the appeal of the dollar. The Chinese yuan firmed 0.2% and led gains in the region, while the Korean won was on track to snap three straight sessions of losses.
Risk sentiment was also aided by a planned resumption of trade talks between the United States and China, with Trump administration officials saying negotiations could restart next week. Investor attention will now be on US non-farm payroll data slated to be released on Friday, which could cement the possibility of a rate cut. "If labour (market) weakens and wages start to fall, markets will ramp up bets the Fed will need more aggressive accommodations to deliver a soft landing," Edward Moya, senior market analyst at OANDA, said in a note.
The Malaysian ringgit firmed slightly, shrugging off a slower-than-expected rise in the country's exports in May. Elsewhere, the Thai baht weakened after gaining 0.4% in the previous session. The Indian rupee ticked up ahead of Indian Prime Minister Narendra Modi's first budget since winning a second term by a landslide over a month ago. Billions of dollars worth of foreign funds were poured into India ahead of the general election in the world's biggest democracy.
Now in power, the Modi government is likely to unveil a budget that will cut taxes on business and raise spending in a bid to shore up consumption and faltering economic growth. "Expect finance minister Nirmala Sitharaman to try to boost investment by reducing capital costs, in her maiden July 5 budget, as promised in the BJP agenda. She will likely retain the interim February budget's FY20 fiscal deficit target of 3.4% of GDP," Bank of America Merrill Lynch economists said in a note.
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