Asian currencies firm as cautious Fed view boosts risk appetite

Most Asian currencies edged higher on increased risk appetite as investors tempered their expectations for a third interest rate hike by the Federal Reserve this year following weak US economic data for June.

US consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and soft domestic demand. The dollar index was up just 0.05 per cent at 95.195, not far away from its 10-month trough hit on Friday.

“While odds of balance sheet reduction in September seems to have increased, chances of another hike by year end seems to have come down, because of the lower than expected inflation. This is positive for Emerging Asian currencies.” said Sim Moh Siong, FX strategist at Bank of Singapore.

“I think for now, the theme is hunt for yield in the EM markets”.

Fed funds futures imply around a 50-50 chance of another hike by December, and have less than two moves priced in for all of next year. Fed policymakers have pencilled in one more rise this year and a further four in 2018.

China’s economic data showing second-quarter gross domestic product grew at a faster pace than expected pace also lifted Asian currencies, even as analysts tip momentum to cool over the rest of the year as policymakers seek to reduce financial risks.

China’s yuan inched up after the central bank lifted its official guidance for the currency’s midpoint to an 8-1/2-month high.

Trade data from Singapore was also solid, with exports growing at double the expected pace last month, and helping the local dollar edge up to its highest since October last year.

In Indonesia, data showed exports and imports contracted in June on a yearly basis for the first time in nine months, though the country still posted a trade surplus.

The Indonesian rupiah was up nearly 0.2 per cent against the dollar on the day.

The broader risk-on mood also pushed the South Korean won

up nearly half a per cent. Analysts expect robust exports data for the first…

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