Most emerging Asian currencies started the week on a bearish note as investors focused on the greenback, hoisted up by the US Senate's approval of a budget blueprint that helped tax reforms gain momentum. US President Donald Trump's plans of implementing a tax reform took a step forward on Friday as a budget blueprint was passed, giving Republicans a chance to overhaul the tax code without Democratic support.
Senate Republicans are under immense pressure to succeed with tax reform after Trump's healthcare plans failed to gather enough support. Christopher Wong, an FX strategist with Malayan Banking Berhad, said that as Trump's promises for policy reforms faltered, markets grew increasingly disappointed. "We saw the initial run-up in USD strength post-Trump victory being more than reversed in the past 9 months," he said.
Renewed expectations of progress in tax reform revived the hope that increased healthcare and infrastructure spending could also be inplemented, supporting growth and leading to higher inflation, which would in turn spur tighter monetary policy, Wong added."Both these ... fiscal and monetary impulses could surprise to the upside for the US dollar," Wong said. The dollar index extended gains to rise up to 0.2 percent.
The dollar also took support from the depreciating Japanese yen, which was led lower by Japan's ruling party winning a super majority in Sunday's election, boosting confidence that Prime Minister Shinzo Abe's yen-weakening fiscal and monetary expansion policies would continue. Among Asian currencies, the Singapore dollar nudged lower ahead of key financial data due later in the day. Singapore's consumer price index is seen gaining at the same pace as the previous month, according to analysts polled by Reuters.
The Philippine peso also followed the downward trend, ahead of budget balance data due later in the day.
The Chinese yuan edged lower as the People's Bank of China lowered its official midpoint to its weakest since October 10. Thailand's markets were closed for a public holiday. The Korean won started picking up by mid-session and was the only Asia EM currency in positive territory. South Korea's gross domestic product (GDP) data will be published on Thursday. "For Korea's Q3 GDP, we see it edging up slightly to 2.9 percent, lifted by buoyant exports and machinery-related investments on top of a gradual recovery in private consumption," Mizuho Bank said in a note.