Asian currencies were treading water against the U.S. dollar, while equities jumped on Wednesday after weak U.S. labour data cemented bets of a pause in interest rate hikes by the Federal Reserve and on optimism over the potential for additional stimulus in China.
The Malaysian ringgit appreciated 0.1% while the Thai baht weakened 0.3%. Equities in Shanghai advanced 0.1%, rising for a third consecutive day, while stocks in Manila jumped 0.9%, leading gains in the region.
Overnight data from the U.S. showed job openings dropped to the lowest level in nearly 2-1/2 years in July, signalling easing labour market pressures and bolstering expectations that the Fed will keep rates unchanged next month.
Markets anticipate a 86.5% chance of the Fed standing pat, the CME FedWatch tool showed.
“I think the market will start to reduce the probability of another Fed rate hike and there could be rising chances of a Fed rate cut around Q2/2024,” said markets strategist Poon Panichpibool at Krung Thai Bank.
However, a much clearer economic picture will likely be revealed later in the week when U.S. payrolls and personal consumption expenditure reports are due.
China’s yuan slipped 0.2% as investors digested the impact from state-owned banks’ forthcoming move to lower interest rates on existing mortgages as a part of government efforts to revive the debt-laden property sector.
“These cuts, if they come through, would be a welcome step which may be able to release some consumption power,” OCBC analysts said in a note.
China’s central bank again set a much stronger than anticipated official mid-point of 7.1816 a dollar, around 1,000 pips firmer than Reuters’ estimate - action it has taken every day since the middle of the month.
“I would expect the yuan to remain supported and in the medium to long term a recovery in the Chinese economy should bode well for the yuan and correspondingly the Asian FX currencies when that happens,” said Saktiandi Supaat, head of FX research at Maybank.
Moreover, Chinese shares have gained this week following the announcement of measures to lift investor confidence, including halving the stock trading stamp duty, loosening margin loan rules and putting the brakes on new listings.
Investor focus will be on purchasing managers’ index data from China later this week that will indicate the state of the economy.
Elsewhere in Southeast Asia, Singapore’s dollar slipped 0.2% while equities in the city-state rose 0.1%.
Singapore will hold a presidential election on Friday with three candidates running for the largely ceremonial role.
The rupiah strengthened 0.2% and stocks in Jakarta gained 0.2%. Indonesia’s central bank sees the average rupiah exchange rate for next year at 14,600 to 15,100 against the U.S. dollar, and 14,800 to 15,200 for this year, its governor said on Tuesday.
The Philippine peso and Indian rupee were flat against the U.S. dollar.
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