Emerging Asian currencies tread water on lingering trade worries

Reuters: Emerging Asian currencies edged higher against the dollar yesterday (28 March), as US-China trade tensions weighed on the greenback but investor caution about the trade rift also tempered appetite for risk in the region.

The South Korean won climbed over 0.25% following the news that the United States and South Korea have reached agreement on a revised trade pact that includes a side deal aimed at deterring competitive currency devaluation by Seoul.

The dollar index, which measures the greenback versus a group of six major currencies, was down 0.1% at 89.291. “The uncertainty over US protectionism isn’t going to fade anytime soon,” said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore in a note. “While investors should enjoy the small win on the tariff front, they’ll be best served to prepare for a long drawn out and perhaps more rancorous dialogue between US and China when it comes to intellectual property rights.” The Malaysian ringgit, which hit a near 2-year high, led the regional currencies on the day, bolstered by high oil prices and portfolio inflows.

 Foreigners have bought $25 million in Malaysian equities this month to take their year’s tally to $590 million, according to the data compiled by Scotiabank.

The Taiwan dollar and China’s yuan were trading flat on the day.

Qi Gao, FX strategist at Scotiabank expects the Taiwan dollar to rise further as it has been tracking the moves of China’s yuan recently.

He said China’s stance to tolerate more appreciation in the yuan to help reduce its merchandise trade surplus with the US would support the Taiwan dollar.

 Some analysts said the fall of 10-year US Treasury yield to a seven-week low of 2.770% would prompt carry trades in high yielding Asian currencies. The Thai baht was down 0.06% ahead of the country’s central bank monetary policy meeting.

A Reuters poll showed the central bank is expected to leave its policy rate unchanged as the economy gains traction.

The baht has risen over 4% against the dollar this year, after its 10% gain in 2017.

“A materially stronger effective exchange rate constitutes tighter overall monetary conditions. And this too offsets the need for the Bank of Thailand to tighten,” Vishnu Varathan, head of economics and strategy for Mizuho Bank in Singapore, said in a note.