Most emerging Asian currencies gained on Wednesday, holding onto positive momentum on hopes of a quick economic recovery even as caution set in ahead of a US Federal Reserve policy decision that may see focus turn toward yield curve control.
Investor sentiment has been buoyant as most countries in Asia have started the process of re-opening their economies and US data supported views that an economic recovery is on the cards.
But hopes for a full-fledged recovery still seem a distant possibility. Analysts are eyeing whether the Fed will pledge to keep longer-term interest rates at a specific level in a move more widely known as yield curve control.
“Any slippage on Fed to address the rising UST yield issue could hurt risk assets,” analysts at Maybank said in a note.
The Thai baht hit its strongest level since Feb. 17 against the US dollar, while the Taiwanese dollar was at a mid-2018 high.
Markets are also looking for confirmation from the Fed on how long rates will stay where they are, said Sim Moh Siong, a currency strategist at the Bank of Singapore, adding that investors were taking positions ahead of the announcement.
“If the Fed continues to stay dovish and the weaker dollar backdrop holds, there’s a bit more scope for the central banks to ease rates and that should be beneficial for the local bond markets,” he added.