Asian currencies scale 16-month peak as weak dollar, firm yuan lift region

Asian currencies surged to a 16-month high on Wednesday, buoyed by a softer US dollar and a steady appreciation in the Chinese yuan, as investors reassessed the outlook for US fiscal and trade policy.

The Bloomberg Asia Dollar Index rose 0.2 per cent to its strongest level since October 2024, reflecting broad-based gains across emerging Asian currencies. The move underscores a growing shift in global capital flows as markets price in what traders describe as a “dollar debasement” trade — driven by uncertainty over US tariffs, fiscal expansion and the sustainability of US debt.

The Chinese yuan, widely regarded as the region’s anchor currency, has strengthened in recent weeks amid firm export data and signs that the People’s Bank of China is showing greater tolerance for currency appreciation. A firmer yuan has historically provided a tailwind for other Asian currencies, particularly those with deep trade linkages to China.

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Currencies in South Korea, Taiwan, Malaysia and Thailand advanced alongside the yuan, supported by improving risk appetite and expectations of stable capital inflows. Market participants said the synchronised gains point to renewed confidence in Asia’s external balances at a time when the dollar’s dominance is being questioned.

The dollar has come under pressure amid concerns that prolonged fiscal deficits and shifting US trade policies could weaken the greenback’s long-term appeal. Investors have also trimmed holdings of US Treasuries, weighing the relative attractiveness of emerging-market assets.

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Adding to the region’s momentum, global funds have channelled money into Asian technology majors, including TSMC and Samsung Electronics Co., seen as critical players in the global artificial intelligence supply chain. Strong demand for AI-related hardware has reinforced optimism about Asia’s export outlook and corporate earnings trajectory.

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Strategists note that a sustained dollar pullback could further ease financial conditions across emerging Asia, reducing imported inflation pressures and allowing central banks greater policy flexibility. However, they caution that currency gains could moderate if US yields stabilise or if geopolitical risks resurface.