Emerging Asian currencies posted sharp gains against the dollar on Monday, as growing hopes for an imminent Sino-US trade pact in the New Year and positive sentiment stemming from a stronger yuan lifted appetite for riskier assets.
China's commerce ministry said on Sunday that it has "proactively dealt with" trade frictions with the United States this year and that it is in close touch with the US on signing the trade deal.
"Tail risk from tariff escalations are abating, and this plays out favourably for export-oriented currencies it really seems that more than anything, a continuing lack of negative news coming from the US administration is quite positive," said Stephen Innes, chief Asia market strategist at AxiTrader.
The United States and China announced a Phase 1 agreement earlier this month, seen as a breakthrough in the months-long trade conflict between the two largest global economies and that it would reduce some US tariffs in exchange for a likely spurt in Chinese purchases of American farm products and other goods.
The Chinese yuan rose to its highest level in more than two weeks, buoyed by a firmer-than-expected midpoint fixing by the central bank and its decision to switch the benchmark for floating-rate loans.
Analysts say the new benchmark could help lower borrowing costs and boost the flagging economic growth. "When it comes to Asia risk markets, how the yuan moves really dictates the pace of play in a lot of the other currencies to an extent," Innes added.
Export-focused currencies South Korean won and the Taiwan dollar, which are largely seen as lead indicators for trade in Asia, strengthened 0.5% each. Investors will now focus on South Korea's December trade figures on Jan. 1, the first monthly foreign trade data to be published by a major exporting economy.
South Korea's finance minister said on Monday that he expects the rate of decline in December exports to be significantly lower than that reported in recent months.
The Malaysian ringgit was set to rally for a third straight day, while the Indonesian rupiah advanced 0.3%. Financial markets in Philippines were closed for a holiday, however the peso was up 0.1% in light offshore trade.
THAI BAHT
The Thai baht edged up, ahead of the release of official November trade readings. Last week data showed that Thailand's customs-cleared exports in November fell 7.39% from a year earlier, while imports contracted 13.78%.
"If imports do not pick up on commencement of more infrastructure projects, trade surplus and subsequently current account surplus will probably pick up further from here. A sizeable C/A (current account) surplus may continue to support the currency," analysts at Mizuho Bank said in a note. The baht is Asia's best performing currency this year despite efforts by the central bank to rein in excessive strength, which has hurt its exports.