Emerging Asian currencies strengthened across the board on Monday as the dollar retreated following comments by Federal Reserve Chairman Jerome Powell that boosted risk appetites. Powell on Friday said the Fed is not on a preset path of interest rate hikes and suggested that it could pause its policy tightening as it did in 2016.
His pledge of sensitivity to downside risks the market was pricing in meant the greenback gave up all the gains logged after December data released earlier on Friday showed US employers hired the most workers in 10 months while boosting wages. "The improvement in risk appetite, together with Powell's latest comments, may continue to see the USD stall... In the interim, (we) expect investors to ride the cyclicals and EM FX higher on the back of improved appetite," said OCBC Bank in a note.
Risk appetites were also whetted by China's aggressive monetary easing announced on Friday and this week's meeting of US and Chinese officials for the first face-to-face talks since both countries in December agreed to a 90-day truce in a their trade war.
The Indonesian rupiah led Monday's gains, rising as much as 1.9 percent to 13,990 to the dollar, its strongest level in more than six months. The Korean won rose as much as 0.8 percent to 1,115.50 against the dollar, while the Indian rupee gained up to 0.7 percent, touching its strongest point since August 10.
The Malaysian ringgit firmed as much as 0.6 percent to 4.108 against the dollar, its best since August. The Thai baht and Chinese yuan both appreciated as much as 0.4 percent. The Thai currency scaled its best level in seven months. The appreciation in rupiah was also aided by a statement that the country's central bank would intervene in the domestic non-deliverable forward (NDF) market to provide liquidity.
Nanang Hendarsah, head of Bank Indonesia's monetary management, said the intervention will be conducted through brokers, separate from the central bank's daily auction to boost the volume of the domestic NDF transactions and deepen the market for hedging needs. OCBC analysts said they expect Indonesia to remain a favoured recipient of net investor inflows in the Asia region, with the rupiah remaining a good "outperformer" candidate.