Emerging Asian currencies rose on Monday as quickening growth in China’s services sector supported recovery prospects in the region and added to positive sentiment around the US Federal Reserve’s accommodative stance last week.
Taiwan’s dollar was set for its best day since March 20 while the Thai baht and Indonesia’s rupiah also firmed, with investors taking a liking to the Fed’s new strategy favoring higher inflation and growth.
The historic shift in the US central bank’s stance is being interpreted as signaling lower interest rates over a long period of time – a view held by Mizuho analysts, who say this may correspond to a softer greenback.
“A weaker USD and asset market boost from ‘lower for longer rates’ are likely to be positive for EM Asia FX and assets,” they said, but warned that any sustained steepening of the US Treasury yield curve could be a significant headwind.
With little domestic news to drive moves, the market focused on China’s service sector activity which expanded at a much faster pace in August although factory growth was slower due to floods.
Thai shares and trade-reliant Singapore stocks added 0.4 percent and 0.3 percent, respectively.