By Nikhil Nainan
Jan 28 (Reuters) – A weaker U.S. dollar lifted Asian currencies on Monday heading into major market events including a Federal Reserve policy meeting and high-level U.S.-China trade talks.
In its first meeting of 2019, the Fed is expected to pause its rate hike cycle, benefiting emerging market currencies.
The dollar index, a gauge of its value versus six major peers, traded 0.1 percent lower at 95.694, its weakest level in about two weeks, as a deal to reopen the U.S. government for now reduced demand for the safety of the greenback.
“With no policy action appearing to be a forgone conclusion at this FOMC, what markets will gauge is how open the Fed is in shifting out of tightening mode,” Mizuho Bank said in a note, referring to the meeting of the Federal Open Market Committee between Jan 29-30.
Broad strength in Asian currencies was led by the Thai baht, which rose to its strongest level against the dollar since last April, rising about 0.5 percent.
The new year has seen investors turn bullish on most Asian currencies, with a recent Reuters poll finding that investors were most bullish on the Thai baht.
Last week, the country set March 24 as the date for its long-awaited general election.
The Indonesian rupiah and Philippine peso among 2018’s worst performers, gained 0.3 percent and 0.2 percent, respectively.
India’s rupee rose 0.1 percent to 71.080 to the dollar. On Friday, the government will announce its last budget before national elections, which are expected to be held by May.
YUAN MAKES STRIDES AHEAD OF HIGH-LEVEL E*TRADE TALKS
The Chinese yuan gained 0.3 percent, rising to an over six-month high against the dollar, ahead of Chinese Vice Premier Liu He’s visit to the United States on Jan. 30-31 for the next round of trade negotiations with Washington.
The unit received support in early trade on Monday after major state-owned Chinese banks were seen selling dollars into spot market to prop up the Chinese currency, three yuan traders said.
U.S. Treasury Secretary Steven Mnuchin said last week that currency issues would be on the agenda for the bilateral trade talks.
Sources say China is keen to buy more U.S. goods to reduce its massive trade surplus, but the two sides are far apart on other issues such as Washington’s demands that Beijing make structural economic reforms.
Meanwhile, a Reuters poll late last week showed investors turned bullish on China’s yuan for the first time in nearly eight months, coinciding with the escalation in trade tensions between the world’s top two economies.
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