Asian currencies are trying to rebound, and that’s supporting stocks throughout the region. Here is what I’m watching to see if this is sustainable, writes Eoin Treacy, editor of Fuller Treacy Money.

Following the big decline in the US Dollar last Friday, I was keen to watch which currencies would bounce most when trading resumed in Asia on Monday. The South Korean Won leapt higher as a short-selling ban in the country attracted bullish bets amid short covering.

The Kospi index has been building support for much of the last year. It found support last week amid a short-term oversold condition and followed through on the upside in a very dynamic manner. The Won’s rebound is an additional tailwind from the perspective of foreign investors.

A graph with red and blue lines  Description automatically generated

In other Asian markets, the Indonesian Rupiah is bouncing from the region of the 2020 lows. That has also helped support the outlook for the stock market with a strong gain by the Jakarta Composite.

A graph with red and blue lines  Description automatically generated

As for the Malaysian Ringgit, it rebounded emphatically to post a failed downside break. The Kaula Lumpur Composite is rebounding and testing the two-year sequence of lower rally highs.

A graph showing the stock market  Description automatically generated

In Australia, the inflation rate is coming down, so the decision to hold interest rates for the last four meetings has paid some dividends. The challenge is the pace of the year-over-year moderation is modest and 5.1% is still a long way from target.

The reluctance to hike more because of worries about the impact on interest-rate sensitive borrowers means the perception of inflation being sticky is probably higher than it might otherwise be. The Australian Dollar has rebounded, but the succession of lower rally highs remains intact.

A graph with red and blue lines  Description automatically generated

Meanwhile, Australia’s S&P/ASX 200 posted an upside weekly key reversal from the region of the 1000-day MA last week. It needs to continue to hold last week’s low if recovery is to be given the benefit of the doubt.

Subscribe to Fuller Treacy Money here...