Asian currencies nudged higher on Monday, supported by a pause in the dollar rally ahead of US President-elect Donald Trump’s inauguration, while most regional equity indexes climbed on improved trade sentiment.
China kept lending rates unchanged for the third consecutive month, as expected, due to concerns over yuan weakness. Yuan appreciated 0.1% during the day, while stocks rose 0.5% - both extending their climb for the third straight session.
MSCI’s index, which tracks emerging market currencies , rose 0.2% to its highest in two weeks.
The index is on track to log its fourth day of consecutive gains, if current trend holds.
Baht, the currency of export-focused Thailand, gained 0.4% to its strongest point since Jan. 3, while stocks also rose 0.4%.
Rupiah, the worst performing unit so far this year, was trading flat.
Trump will take the oath of office at noon Eastern Time (1700 GMT), and markets globally are likely to be on a high alert for any whiff of tariff policy announcements during the early hours of his second presidential term.
US tariff hikes on imports are broadly expected to fuel global inflationary pressures, influencing central banks’ monetary policy decisions and affecting currencies.
Asian currencies rise on softer dollar, stocks mixed
Kunjal Gala, London-based head of global emerging markets at Federated Hermes, played down the impact of tariffs stating they will primarily be used as a negotiating tactic.
“Despite the negative headlines, we do not believe that a Trump presidency 2.0 will undermine the structural growth drivers that support EM,” Gala said.
“Many developing countries have pivoted towards domestic consumption, stepped up investment in infrastructure, and expanded digitisation penetration, driving efficiency and productivity.”
Meanwhile, a phone call between Trump and Chinese President Xi Jinping around TikTok, trade and Taiwan helped regional stocks edge higher earlier in the day, although those gains fizzled out by the afternoon.
“The news was nothing more than a sugar hit and won’t last because the material tariffs risks haven’t subsided,” said Kyle Rodda, senior financial market analyst, Capital.com. “But for traders, it helps define and understand the narrative.”
Stocks in Indonesia, the largest economy in Southeast Asia, were last up 0.3% after having risen as much as 0.7% to their highest levels since mid-December.
Equities in Malaysia and the Philippines climbed about 0.2% each.
This week, investors will be awaiting interest rate decisions from Bank Negara Malaysia and the Monetary Authority of Singapore (MAS) to gauge their direction of monetary policies.
The Malaysian central bank is likely to keep overnight rates unchanged at 3.00%, while analysts are widely expecting the MAS to recalibrate the tightness of its policy band.
These policy decisions will follow rate moves from Bank Indonesia and Bank of Korea last week, which diverged from market expectations, underscoring the trade-off between growth and currency stability faced by Asian central banks.
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