Asian currencies edged higher on Tuesday but their upside was limited, as the dollar clung near its highest in more than two years, aided by expectations that strong US economic data will prompt the Federal Reserve to pause its easing cycle this year.
Malaysia’s ringgit and the Philippine peso each nudged 0.2% higher, while South Korea’s won appreciated 0.5% ahead of a central bank policy meeting on Thursday where a quarter-point cut to its base rate is expected.
South Korea’s central bank is expected to implement a rate cut a month earlier than initially anticipated, as the Bank of Korea (BoK) focuses on supporting a faltering economy amid rising political uncertainties.
Analysts at Citi believe the “BoK’s rate cut alone will have a limited impact” on won’s weakness, which has depreciated more than 4% since the political crisis unfolded in early December.
They further stated that while political uncertainties have already weakened the won, going forward US dollar’s broad-based strength and potential weakness in China’s yuan could pressure the currency.
Asian currencies: Rupiah, ringgit fall on strong US jobs report
China’s yuan recovered slightly, but continued to hover near a 16-month low on concerns including a strong dollar, falling Chinese bond yields, and escalating trade tensions with the United States.
Most equities in the region were also on the recovery path, led by benchmark indexes in Taiwan and Malaysia, which climbed around 0.5% each.
The MSCI index of equities in emerging Asia jumped 0.8%, rebounding from a five-month low touched in the previous session.
A strong US jobs report last week reinforced confidence in the Fed’s cautious approach to further monetary policy easing, leading traders to reduce their expectations for rate cuts this year.
Traders are pricing in 29 basis points of easing this year, less than the 50 basis points the Fed projected in December.
The dollar index, which measures the US currency against six other units, was trading at 109.68, a few pips shy of the 26-month high of 110.17 touched on Monday.
Investor focus will now be on the US inflation print, set to be released on Wednesday, where a rise in the core measure could threaten to close the door on easing altogether.
Sticky annual inflation of around 3% would mean “there would no longer be any narrative for the Fed to cut rates”, said Eugene Leow, senior rates strategist at DBS.
Elsewhere in Asia, Taiwan’s dollar, Thai baht, Indonesia’s rupiah and Singapore’s dollar remained largely unchanged, while India’s rupee nursed losses after it hit a lifetime low on Monday.
Benchmark indexes in Indonesia, Thailand dipped, while stocks in Manila fell 0.6%.
China’s Shanghai Composite Index gained 1.8%, recovering from a nearly three-month low.
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