Asian currencies rallied against the dollar on Thursday, as the greenback went into a tailspin after comments from the US Treasury secretary hinted of a paradigm shift in the currency policy of the world's largest economy. US Treasury Secretary Steven Mnuchin welcomed a weaker currency at the World Economic Forum in Davos, saying that "obviously a weaker dollar is good for us as it relates to trade and opportunities," which was seen as a departure from traditional US currency policy.
The dollar stood at a more than three-year low against a basket of currencies. "This (fall in the dollar) resulted from US Treasury Mnuchin's endorsement of a weaker dollar by suggesting it is good for US trade," Mizuho said in a research note. Asian currencies as such, benefited from the weaker greenback, with a slew of gains across multiple regions.
The South Korean won shot up over one percent against the dollar, making it the best performing Asian currency for the day, despite central bank data showing that the country's economy conttracted in the fourth quarter. South Korea's economy posted its worst performance since 2008 in the last quarter as struggling car exporters and industrial production failed to keep up the previous quarter's dashing pace.
The Thai baht rose to a more than four-year high against the dollar, while the Chinese yuan stood at a more than two-year high. The Malaysian ringgit rose about 0.3 percent to a near two-year peak against the dollar. The currency was on track for its fifth straight session of gains.
Malaysia's central bank is expected to raise its benchmark interest rate for the first time in 3-1/2 years on Thursday, a Reuters poll showed. Growth momentum has picked up in recent months, and economists expect there is a window now for the central bank to "normalise" its key rate before elections that must be held by August. "Other positive signs in the economy, together with a mild inflation pick-up makes the likelihood of a rate hike by the central bank today increasingly more likely," OCBC Bank said in a research note.
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