Most Asian currencies were softer on Thursday as investors reassessed their expectations of steep and early rate cuts by the Federal Reserve this year, after minutes of the central bank’s last meeting failed to provide proper clues on the timing.
The South Korean won dipped nearly 0.4%, poised for its third consecutive session of losses. It has fallen around 1.7% so far this week, compared to a 4.6% gain in the last two months of 2023.
The Indonesian rupiah and the Malaysian ringgit lost 0.2%, each. Both currencies have declined nearly 1% in the first week of 2024 after logging an over 3% gain in the last two months of 2023.
The dollar edged higher overnight after minutes of the Fed’s last meeting showed officials were convinced 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 H1 2024 before turning lower persistently in H2 2024 with the Fed cutting rates in earnest from mid-year,” Tan said.
Most Asian currencies pull back as rate cut rally dissipates
Investors now await inflation data from Thailand and Philippines, both due on Friday. Recent inflation prints in Asian economies have shown easing price trends giving the central banks in Asia some breathing room.
“With the FOMC flagging that rate cuts are on the horizon in 2024, Asian central banks will also be starting to plot out when monetary policy can be eased,” said Tim Waterer, chief market analyst at brokerage firm KCM Trade Global.
Regional stock markets were broadly mixed. Equities in Jakarta climbed 0.8% to touch their highest level since September 2022, while those in South Korea and Singapore fell 0.8% and 0.7%, respectively.
Stocks in Malaysia rose 0.6% to their highest level in nearly 11 months.
Stocks in Manila rose 1.1% 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 root cause.