BENGALURU: Emerging Asian currencies and stocks rose on Wednesday, with investors awaiting the US Federal Reserve’s policy decision later in the day, while the yen was choppy after the Bank of Japan raised rates for the second time since 2007.
The South Korean won and the Thai baht gained the most among currencies, rising 0.6% and 0.5%, respectively.
Investors now await the Fed’s decision, with markets expecting the central bank to stay pat on interest rates. However, any commentary on a possible rate cut in September will keenly eyed.
Market participants have largely priced in a September rate cut, with more than 87% odds of a 25 basis-point reduction, according to the CME FedWatch tool.
The Bank of Japan raised its short-term interest rate target to 0.25% and unveiled a detailed quantitative tightening plan on Wednesday, pushing the yen to its highest in a week, before the currency pared all of its gains.
“The elephant in the room is JPY, which has been highly volatile. The sharp recent appreciation suggests that many currency traders made correct bets on the BoJ’s rate move today,” Duncan Wrigley, Chief China+ economist at Pantheon Macroeconomics, said in a note.
Other Asian currencies such as the Singapore dollar, the Philippines peso and the Malaysian ringgit traded flat to 0.3% higher.
The Fed cutting rates could pave the way for Asian central banks to start easing their own policy stances, even though this may not be as beneficial for emerging Asia, said Jonathan Koh, an economist and FX analyst at Standard Chartered.
“I think some (Asian) central banks could cut interest rates following the Fed, so in a way the interest rate differential may not actually narrow in favour of Asian currencies but usually when the Fed cuts, it may lead to a risk-on sentiment for EM Asia currencies,” Koh said.
A wider interest rate differential is usually beneficial for riskier emerging market assets as investors will seek higher returns, boosting capital inflows.
Investors also await inflation data from Indonesia and South Korea this week, to gauge the stance of their respective central banks on interest rates. Both central banks had held rates earlier in the month, citing more economic evidence was needed to pivot to rate cuts.
Most emerging Asian equities rose, with Chinese stocks advancing about 1.9%, as investors cheered a Politburo meeting that emphasised the need for a boost in consumption.
Bourses in Thailand, Philippines, Malaysia and Indonesia traded higher between 0.1% and 0.8%.
Comments
Comments are closed.