Asian FX firm on softer dollar; regional, trade headwinds back in focus

New Straits Times

6 hours ago

SINGAPORE/HONG KONG: Asian currencies advanced on Thursday as the dollar weakened amid worries over the US Federal Reserve's independence, while investors turned their attention from easing Middle East tensions to regional and trade risks.
Stocks in the region traded mixed, with South Korean shares sliding more than 2 per cent as investors locked in profits following a strong post-election rally.
On the other end, equities in Thailand were up 0.4 per cent, while those in Malaysia advanced by 0.3 per cent. Investors are now shifting their focus from geopolitical risks in the Middle East, which kept markets on edge much of this week and last, to rising trade tensions as the July 9 deadline for the 90-day pause on reciprocal tariffs approaches.
The key downside risk lies in the short timeframe before reciprocal tariff suspensions expire, with uncertainty over their extension, which could introduce volatility and reverse current sentiment quickly, RHB analysts wrote.
Globally, concerns over the Federal Reserve's independence dented confidence in US monetary policy and sent the US dollar lower, after a media report said President Donald Trump had considered replacing Fed Chair Jerome Powell by September or October.
The weakness in the dollar gave Asian currencies a lift, with the Thai baht inching up 0.5 per cent, a day after the Bank of Thailand (BoT) kept its interest rates unchanged.
Alan Lau, an FX strategist at Maybank, said the BoT's dovish tone and a softer dollar are keeping rate cut hopes alive, supporting Thai bonds and paving the way for baht strength through the year.
Thailand, already grappling with weak consumption, mounting household debt and a tourism slowdown, now also faces escalating political uncertainty and the risk of steep US tariffs on its exports if a deal is not struck before a July deadline.
Most central banks in the region have taken a wait-and-see approach during their recent meetings, quoting the fundamentals of their respective economies and taking stock of uncertainty in global trade and geopolitics.
Taiwan's central bank recently held its interest rates steady, citing solid growth in its tech-driven economy and muted inflation, while its Indonesian counterpart said it would intervene when required.
The Taiwanese dollar rose 0.9 per cent to reach its highest level in over 3 years, while the Indonesian rupiah added 0.5 per cent.
Meanwhile, the Philippines central bank left the door open for at least one more cut this year following a recent 25-basis-point rate cut.
In Hong Kong, the local dollar held steady after the de facto central bank sold US$1.2 billion to defend the local currency peg, which keeps the Hong Kong dollar trading within a 7.75-7.85 range against the US dollar. Stocks were down 0.7 per cent.
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