Most emerging Asian currencies and stocks edged higher on Tuesday, with the Thai baht and South Korean won leading gains, as traders awaited inflation data from the US for clues on the Federal Reserve’s monetary policy stance this year.
The baht strengthened 0.5% against the US dollar after a major sell-off on Monday following Prime Minister Srettha Thavisin’s rate cut remarks.
The currency also snapped a five-day losing streak on Tuesday.
The South Korean won jumped 0.3%, its biggest intraday gain since Dec 28, 2023, while shares in Seoul were largely unchanged.
The Bank of Korea (BOK) on Thursday is expected to keep its policy rate unchanged for an eight consecutive meeting as inflation eases and keep it steady until at least the third quarter despite some concerns around financial stability, a Reuters poll found.
“Most Asian central banks are likely to follow the BOK stance, waiting for greater evidence of a persistent deceleration of inflation before deciding on rate cuts later this year,” said Wei-Liang Chang, macro strategist at DBS Bank.
Among equities, stocks in Manila advanced 0.8% and maintained the July-end high they touched on Monday. Kuala Lumpur stocks added as much as 0.6%, hitting their highest level since Nov 25, 2022.
Comments from Fed officials overnight helped soothe sentiment, with Governor Michelle Bowman retreating from her persistently hawkish view and Atlanta President Raphael Bostic reiterating his earlier view that he does anticipate rate reductions this year.
Traders are awaiting US inflation data for December due later in the week for an indication of when the Fed might start cutting interest rates. A rate cut from the Fed would be favourable to Asian currencies and equities.
Thai baht lowest in over 10 months; other Asian FX steady
Markets are now anticipating a 62% chance that the Fed could begin easing rates as early as March, compared to a nearly 90% chance a week ago, according to the CME FedWatch Tool.
“Although the market has priced in a Fed rate cut in March, investors should be wary about the possibility of a delayed move, which will pose headwinds to Asia’s capital inflows,” said Gary Ng, Senior Economist, Asia Pacific with Natixis.
Elsewhere, the Malaysian ringgit ticked up 0.2%, while the Philippine peso slipped 0.4%.
The Indonesian rupiah was flat.Equities in Shanghai, Bangkok and Singapore advanced between 0.2% and 0.5%.
All eyes are on Taiwan’s presidential and parliamentary elections on Jan. 13, an election that China, which views the island as its own territory despite the strong objections of Taipei’s government, has cast as a choice between war and peace.
“Geopolitical risks over Taiwan are also a risk to watch, with reduced tensions post elections likely to catalyse a rebound in RMB and Asian currencies,” DBS Bank’s Chang said.
Markets are also looking forward to a raft of data due this week, including inflation data from India and China.