Asian currencies advanced to the strongest level in more than a year after the Federal Reserve kicked off policy easing and signaled further reductions this year.
The Bloomberg Asia Dollar Index rose 0.2% on Thursday, bringing the gauge to the highest since July 2023. The Chinese offshore yuan, Korean won and Indonesian rupiah led the gains.
The US Fed announced a half-percentage-point-rate cut, which was larger than forecasters had generally anticipated, with updated projections predicting another 50 basis points of easing in 2024. The market is expecting a far more aggressive stance, with bets on another 70 basis points of rate reductions at the Fed’s two remaining meetings this year.
While US dollar weakness resulting from the Fed’s dovish stance is bolstering Asian currencies, better growth prospects in Asia are providing further tailwind.
Manufacturing sentiment appears resilient in the region, with August data in South Korea, Philippines, Thailand, Taiwan, India and China pointing toward expansionary expectations. Similarly, second-quarter y-o-y gross domestic prints from Indonesia, Singapore, Malaysia and Thailand have all beat economists estimates.
The strength in Asian currencies is likely to give more room for local central banks to reduce rates. Bank Indonesia cut its key interest rate on Wednesday with its currency trading close to the strongest level versus the dollar in a year.
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