Asian currencies firmed on Thursday on news that China has delivered a written response to US trade demands, raising hopes the two sides will begin negotiations to bring an end to their trade war. The Korean won led gainers after Reuters reported China had responded to US demands for wide-ranging trade reforms, citing three US government sources.
The sources gave no further details on the content of the response, and it was unclear if it contained concessions that would satisfy US President Donald Trump's demands for change. But global investors have been heartened in recent days that the two sides have at least resumed informal discussions at various levels.
"It appears China is more willing to consider issues raised by the US than in the past," said Chang Wei Liang, FX strategist at Mizuho Bank. Chang said investor confidence was also bolstered after British Prime Minister Theresa May won the backing of her senior ministers for a draft European Union divorce deal on Wednesday, though she now faces the much more perilous struggle of getting parliament to approve it.
The positive sentiment was also aided by a softer greenback, as the dollar index reacted to rallies in the euro and sterling, which together constitute around 70 percent of the weight in the index. The Philippine peso and the Indian rupee gained as much as 0.4 percent each, while the Indonesian rupiah strengthened as much as 0.3 percent.
Both the peso and the rupee rose for a third successive session. The Chinese yuan gained as much as 0.2 percent while the Malaysian ringgit edged up 0.1 percent. Currency markets were awaiting central bank policy decisions later in the day in Indonesia (0700 GMT) and the Philippines (0800 GMT).
Indonesia's central bank is likely to hold its benchmark interest rate, a Reuters poll showed, though some analysts expect December to bring this year's sixth rate hike. In a Reuters poll, analysts were nearly evenly split on whether the Bangko Sentral ng Pilipinas will raise interest rates for the fifth time this year to tackle stubbornly high inflation, after the economy grew at its slowest annual pace in more than three years in the third quarter.
"Although external stability seems to be improving with falling bond yields and peso rebounding alongside other beaten-down currencies, pressure from tightening global liquidity condition may return given its large (and widening) trade deficit," said Mizuho Bank analysts in a note.
Thailand's central bank held its benchmark interest rate steady on Wednesday as expected, but a widening split on the decision-making committee bolstered views that next month it could tighten policy for the first time in more than seven years.
"The 4-3 vote and comment that 'the need for accommodative monetary policy would be gradually reduced' seem not enough to take up rates, as a minority in the market had expected a hike. USD/THB went up as a response, reflecting market focusing more on the decision itself," said Frances Cheung, head of macro at Westpac.
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