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Asian units underpinned by Sino-U.S. optimism, dollar weakness

By Ambar Warrick
New baht bank notes featuring Thailand's King Maha Vajiralongkorn are unveiled during a news conference at Bank of Thailand headquarters in Bangkok, Thailand

By Ambar Warrick

(Reuters) - Most Asian currencies rose on Tuesday as talks between top U.S. and Chinese trade officials supported appetite for emerging market assets, although investors were still skittish ahead the meeting between Donald Trump and Xi Jinping later this week.

Dialogue between Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin was taken well by markets, given the breakdown in talks seen in May.

The Thai baht surged nearly 0.4% to the dollar, reaching its strongest level in six years. The currency was undeterred by a weaker-than-expected industrial output reading, and continued to benefit from strong foreign inflows.

The Indonesian rupiah strengthened 0.2% to the dollar after Southeast Asia's largest economy posted a surprise trade surplus in May, spurring optimism over the economy amid global headwinds.

The Indian rupee and the South Korean won both gained about 0.1% to the dollar.

Bucking the regional rally, the Chinese yuan dipped around 0.1% to the dollar after a weaker than expected daily fix by the People's Bank of China (PBOC).

The currency, which saw its best week in more than three months, fell for a third straight session. The yuan has seen muted trade ahead of the G20 meeting. Markets are watching the meet for any cues on the reopening of trade negotiations between U.S. and China at the G20 meet in Osaka.

Broader dollar weakness, driven by the U.S. Federal Reserve's strong signals that it will cut interest rates, also underpinned regional currencies. Markets now await further comments from other Fed speakers later in the day.


THAI BAHT

The baht extended gains for a fifth straight session.

"Foreign funds continue to pour into Thailand’s fixed income space, with total net inflows month to date in June at $2.41 billion – the highest since Sep 2017," OCBC said in a note.

"The strong performance of the baht vis-a-vis regional peers may have resulted in foreign demand for the currency, expressed via holding Thai assets such as equities and bonds," OCBC added.

OCBC also noted that the Thai central bank was seen as the least dovish amongst its regional peers, and would not ease rates as aggressively as other banks, if at all.

The baht outperformed its regional peers in 2018, and has continued the trend so far in 2019, adding about 6.3%.


(Reporting by Ambar Warrick in Bengaluru; Editing by Sam Holmes)