Forex world

March 17, 2023

Asia FX rises, dollar dips

Most Asian currencies rose sharply on Friday amid easing fears of a global banking crisis, while the dollar retreated as markets also bet that the Federal Reserve will soften its hawkish stance to prevent more economic pain.

China’s yuan was among the best performers for the day, rising nearly 0.5% as a positive outlook on the Chinese economy from Goldman Sachs also boosted sentiment. The investment bank expects China’s economy to grow 6% this year, more than government forecasts of 5%.

Economic data released this week showed that certain facets of the economy were recovering from three years of COVID lockdowns. But growth in the manufacturing sector still remained below full capacity. 

The Japanese yen rose 0.6% and was set to add 1.4% this week, having benefited greatly from increased safe haven demand. A mild improvement in Japan’s massive trade deficit also helped sentiment towards the yen, amid easing supply chain issues.

Broader Asian currencies advanced amid increased risk appetite, as fears of an imminent banking collapse were eased by several major U.S. lenders supporting First Republic Bank (NYSE:FRC). This came after Swiss lender Credit Suisse Group AG (SIX:CSGN) scored an up to $54 billion credit facility from the Swiss National Bank to fortify liquidity levels.

The support for banks, coupled with government reassurances that the banking sector was stable, helped ease concerns over an imminent collapse in the banking system, following the failure of several U.S. banks over the past week.

The dollar index and dollar index futures retreated about 0.3% each amid bets that the Fed will taper its hawkish stance to prevent further pressure on the economy from rising interest rates.

The collapse of several U.S. banks in recent weeks was driven largely by a slump in bond prices, to which lenders such as Silicon Valley Bank were disproportionately exposed. 

Markets are now pricing in a nearly 90% chance that the Fed will hike rates by a smaller 25 basis points next week. 

Risk-heavy Southeast Asian currencies advanced on Friday, with the Thai baht rising 0.6%, while the Philippine peso added 0.5%.

The Singapore dollar rose 0.3% after data showed the island state’s key non-oil exports shrank slightly less than expected in February from the last year.

The Indian rupee rose 0.2%, also benefiting from weakness in oil markets, while the Australian dollar surged 0.8% after logging sharp losses over the past week. 

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