U.S. economic data released late Thursday showed the world’s largest economy expanded at a 2.9% annualized rate in the fourth quarter. That number, higher than economists had forecast, did something immediate in Asia: it made investors believe the Federal Reserve might pull off a soft landing. That belief, on Friday, sent a wave of money into regional currencies and stocks.
The Philippine Peso and the Malaysian Ringgit each rose 0.4% on January 27. They led the pack.
But the real story is what this says about the stakes for central banks across the region. For months, Asian finance officials have been walking a tightrope. Raise rates too aggressively to defend currencies, and you choke off domestic growth.
Raise them too slowly, and capital flees to the dollar. The strong U.S. GDP figure changes that calculus.
It suggests the Fed can ease off its own rate hikes without triggering a recession. That would mean less pressure on Asian currencies to keep climbing to compete for yield. It also means the export-dependent economies of Southeast Asia might not face a sudden collapse in American demand.
Analysts at TD Securities pointed to one concrete factor: the rebuilding of foreign-exchange reserves. That, they said, “bolsters the optimistic perspective on Asia FX amid the China reopening story.” They added a caution: “we are hesitant to chase it since much is in the pricing.” So the optimism is real, but it is not unlimited. The reserves are coming back, but the rally may already reflect that.
Not every currency joined the advance. The Thai baht, which has been one of the region’s top performers, actually lost 0.3% on Friday.
The Indonesian rupiah, aiming for a third straight weekly gain, dipped 0.2%. The Singapore dollar and the South Korean won each fell 0.2% and 0.1%, respectively. Currency traders are not buying everything.
They are picking winners. What is at risk here is the pace of China’s reopening.
That story — the world’s second-largest economy dropping its zero-COVID policy and trying to revive growth — has been the dominant narrative for Asian markets since early January. The U.S. GDP data does not replace that story. It reinforces it.
A resilient American consumer means China’s export sector has a market to sell into. A soft-landing Fed means capital stays available for emerging markets. The stock market reaction was clear.
MSCI’s broadest index of Asia-Pacific shares outside Japan climbed as much as 0.55% on Friday, hitting a nine-month high. Investors were betting that the combination of U.S. resilience and Chinese reopening would lift corporate earnings across the region.
OCBC analysts captured the mood: “optimism that the U.S. Fed may be able to orchestrate a soft landing.” That is the core wager. If the Fed manages it, Asian central banks can stop fighting a two-front war against inflation and currency depreciation. If the Fed stumbles — if the economy tips into recession — then the peso, the ringgit, and the rest will face a new round of pressure.
For now, the data gave them breathing room. The peso and ringgit gained.
Stocks rose. The reopening story got a boost from an unexpected place — a GDP report out of Washington. The question is whether that boost lasts a week, a month, or a quarter.
