ASIA PACIFIC – The news that both the United States and Iran are shying away from further conflict prompted Asian currencies to rally on Thursday. It also gave investors more confidence to turn to riskier assets once more. The Chinese yuan was also bullish over the imminent signing of the US-China trade deal.
The easing of tensions between the US and Iran effectively halted the almost week-long rally of safe-haven assets like the Japanese yen (JPY) and gold. The JPY dropped by 0.15% to 109.20. It was at 109.12 yesterday. Oil prices have also returned to what it was before a US air strike killed Qassem Soleimani.
Among Asian currencies, the South Korean won gained the most. The currency went up 1% against the US dollar (USD) and is now at 1,158.900. India and Indonesian monies also advanced. The rupee went up by 0.4% to 71.405 while the rupiah gained 0.3% to 13,847.00. It’s the highest the rupiah reached since June 2018.
China’s yuan also strengthened and advanced 0.2% against the USD and is at 6.93 now. The Singapore dollar is up 0.04% to 1.350 while the Taiwan dollar gained 0.38 to 29.973.
The Philippine peso is the only currency in the region that failed to take advantage of a stronger risk-appetite and inched down to 50.595.
IG Singapore’s market strategist Jingyi Pan noted that the unexpected lack of retaliation after US President Donald Trump’s threats over the weekend helped put investors in a positive mindset.
There are still lingering risks as the key issues between the two countries have yet to be ironed out, but Pan claims the likelihood that an all-out war will break out and curtail the Middle East’s supply of oil has been significantly reduced.
Now that tensions between the US and Iran is easing, Asia and other markets are turning their attention to America’s trade deal with China.
A Reuters poll indicate that the imminent agreement signing appears is turning the yuan bullish. Long positions on the Chinese currency are at the highest levels since March 2019. The rise in risk-on attitude over the prospective end of the US-China trade war has countered any lingering negative impact from the events of the Middle East.
The yuan holding strong against the US dollar below the 7.0 level is providing some support for other currencies in the region.
The USD/JPY is currently holding on to its Wednesday gains. The pair is past the 200-bar SMA. The EUR/USD has hit the short-term downside level at 1.1110 and is consolidating at 1.1113. Meanwhile, the GBP/USD is developing a descending wave with a 1.3050 target. It might break past this level later and fall to 1.288.