Most Asian currencies fall as investors reassess US rate cut bets, stocks mixed

(Jan 4): Most Asian currencies declined on Thursday as investors reassessed their expectations of steep and early US rate cuts this year, after minutes of the Federal Reserve’s December meeting provided few clues on the timing.

The South Korean won dipped nearly 0.4%, set for its third straight day of losses. The currency has shed nearly 1.7% in just three trading sessions this year, compared to the last two months of 2023 when it appreciated 4.6%.

The Indonesian rupiah and the Malaysian ringgit lost 0.2% each. Both currencies have declined nearly 1% in the first week of 2024.

The dollar edged higher overnight after minutes of the Fed’s December meeting showed officials acknowledged that inflation was coming under control and were concerned about the risks of the central bank’s “overly restrictive” monetary policy on the economy.

However, the minutes did not provide direct clues about when rate cuts might commence.

 “The minutes helped the market to shave off a few more basis points of Fed cuts priced for 2024 during the New Year session,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

“I expect USD/Asia (currencies) to be largely range-bound in the first-half of 2024 before turning lower persistently in the second-half, with the Fed cutting rates in earnest from mid-year,” Tan said.

The spotlight will now be on the US nonfarm payrolls report scheduled for Friday for further clues on the labour market, which has shown signs of easing.

Investors also await inflation data from Thailand and Philippines, both due on Friday. Recent inflation prints in Asian economies have shown easing price trends, giving Asian central banks some breathing room.

Bangko Sentral ng Pilipinas (BSP) governor said the central bank wants to make sure it does not unnecessarily tighten monetary policy. The BSP kept its benchmark interest rate steady for a second straight meeting last month.

Regional stock markets were broadly mixed. Equities in Jakarta climbed 0.9% to touch their highest level since September 2022 while those in South Korea fell 0.8% and Singaporean equities fell 0.9%.

Stocks in Malaysia rose 0.7% to their highest level in nearly 11 months.

Stocks in Manila rose 1.6% to hit their highest level since early August 2023. The benchmark dropped 0.8% on Wednesday as trading was halted because of “technical issues” that stopped transactions for more than two hours.

The Philippine Stock Exchange, the bourse operator, said it was conducting an investigation with its third-party system provider to identify the problem.

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