Asian currencies gained against the dollar on Friday after dismal US factory data spurred speculation that the Federal Reserve could switch from raising to cutting rates before the end of the year, and on signs of progress in Sino-US trade talks. Survey data on Thursday showed US factory activity slowed more than expected in December, suffering the biggest drop since 2008 as the world's largest economy begins to lose steam.
Yields on two-year US Treasuries sank below 2.4 per cent, reaching parity with the Fed key rate. While, three- and five-year yields were even lower, an inversion that sometimes heralded recessions in the past.
Meanwhile, news that China and the United States would hold vice-ministerial level trade talks in Beijing next week further soothed risk-averse investors and boosted regional currencies. OCBC Bank in a note to clients said that Asian currencies may respond to the weaker broad dollar complex with foreign investor interest proving supportive for regional asset markets.
The Indian rupee was the second best performer in the region, strengthening 0.4 per cent on Friday and was on track for marginal weekly gains. Also gaining against the dollar was the South Korean won and the Thai baht. The baht was in line to strengthen 1.5 per cent this week, its sixth straight week of gains, however the won was poised to post a weekly drop of 0.7 per cent.
Elsewhere, gains in the Malaysian ringgit were capped after government data showed the country's trade surplus in November plunged as exports lagged behind imports.
The Philippine peso traded in a tight range as inflation in the archipelago cooled to a seven-month low in December, reinforcing expectations of a pause in interest rate tightening by the central bank.
The Chinese yuan, the Singapore dollar and the Taiwan dollar were marginally firmer.
The rupiah gained as much as 1.05 per cent to 14,255 on Friday, but had pared some gains by 0451 GMT. The currency was on track to firm nearly 2 per cent this week. Indonesia's central bank plans to intervene in the domestic futures market to defend the rupiah, a official told Reuters earlier in the day.
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