Emerging Asian currencies slipped on Friday, with the South Korean won and the Taiwan dollar weakening the most, while shares traded mixed as geopolitical tensions in the Middle East clouded investor sentiment.
The dollar was on the front foot, as the prospect of Israel retaliating for Tehran’s largest ever assault prompted safe-haven inflows, while the likelihood of another outsized rate cut will be assessed following a key jobs report later on Friday.
Investors are now pricing in a near 32% chance of a 50 basis point cut in November, down about 49% last week, according to a CME FedWatch tool.
“Despite a boost for risk assets emanating from the Fed’s 50bp cut and China stimulus, rising geopolitical risks and higher oil prices may act as a stumbling block,” analysts at Barclays wrote.
“In the event of a supply shock that sends oil prices up by around 20% it would send the USD higher against EM currencies, especially the KRW,” they added.
Rising oil prices are detrimental for emerging Asian currencies, except Malaysia, as they weigh on the current account deficits of these nations, which are net oil importers.
The South Korean won led losses, dipping as much as 0.9% and poised for its worst session since early August.
Other currencies such as Malaysian ringgit, Indonesian rupiah, and the Singapore dollar traded between flat and 0.4% lower.
The ringgit was set for its worst week since March 2020, while the rupiah was headed for its worst weekly performance since April.
“The decline of the ringgit and baht seem more likely due to stretched positions and drag from the yen after making their stellar performance in September,” Maybank analysts said.
Taiwan’s dollar slipped about 0.5%, after markets reopened on Friday, following the damages from flooding and high winds due to Typhoon Krathon.
The Philippines peso, however rose about 0.2%.
The archipelago nation’s inflation accelerated at its slowest rate in more than four years in September.
This was preceded by easing inflation prints in both South Korea and Indonesia.
The Bank of Korea is set to meet next week, where investors are pricing in a policy rate cut. Central banks in Indonesia and Philippines had already moved to ease their respective monetary policies.
The Reserve Bank of India is set to meet next week as well, but will likely maintain its stance.
Inflation prints from China, Thailand and Taiwan in the coming days will shape their respective central banks’ stances on rates.
Stocks in South Korea rose around 0.6%, while Singapore stocks edged 0.2% higher.
However, equities in Indonesia, Malaysia and Taiwan were down between 0.3% and 0.5%, reflecting a mixed display in the region.