Asian currencies hit seven-month highs on US ‘Goldilocks’ scenario

(Times of Update) — Asian currencies hit seven-month highs as easing fears of a U.S. recession, bets that the Federal Reserve will cut rates next month and improving domestic conditions boosted sentiment in the region.

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The Times of Update Asian dollar index gained as much as 0.6% on Monday, hitting its highest level since January. The South Korean won and Malaysian ringgit led the regional advance on upbeat growth prospects, while the Thai baht gained on easing political tensions.

“This looks like a best-case scenario, where U.S. recession fears fade while growth momentum in the region remains subdued,” said Christopher Wong, foreign exchange strategist at Oversea-Chinese Banking Corp. “Asian currencies ex-Japan have room to rise as developed-market central banks have largely adopted an accommodative stance.”

The ringgit rose 1.5% to 4.3678 per dollar, the highest level since February 2023. On Friday, the country reported a stronger-than-expected increase in second-quarter gross domestic product from a year earlier, while global funds pumped the most money into its stock market since June.

The baht extended its gains to 34.409 per dollar, the highest level since January, after Paetongtarn Shinawatra won enough votes in parliament on Friday to become Thailand’s next prime minister.

While his appointment has helped ease fears of a prolonged political vacuum after his predecessor was ousted by a constitutional court, the currency could face a bumpier road ahead as the new government may abandon a $14 billion digital cash distribution program. The relationship between the new government and the Bank of Thailand will also be in focus again given the new prime minister’s past criticism of the central bank.

Goldman Sachs Group Inc. economists cut the probability of a U.S. recession next year to 20% from 25% over the weekend, citing better-than-expected retail sales and jobless claims data released last week. They also said they were “more confident” that the Fed will cut interest rates by 25 basis points at its September policy meeting.

Easing fears of a recession in the world’s largest economy are a positive for export-oriented Asian countries. The South Korean won rose 1.5 percent to 1,331.35, its highest level since March. The Philippine peso gained 1 percent to 56.66 per dollar, its biggest gain since November.

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The yen rose 1.2% to 145.87 per dollar as traders waited to see whether Bank of Japan Governor Kazuo Ueda would give any guidance on the central bank’s rate hike path when he appears before parliament on Aug. 23.

The Times of Update Dollar Spot Index fell 0.3% as traders awaited Fed Chairman Jerome Powell’s speech at the Jackson Hole symposium later this week for clues on rate cuts. A gauge of aggregate demand for bullish calls versus bearish puts on the U.S. currency showed traders were split on which direction to take to hedge, having paid up for bets on a stronger dollar for much of the week…