Most Asian currencies muted; stocks gain ahead of Fed rate decision

ASIAN emerging market currencies were subdued on Monday after inflation data in the United States further dimmed the prospects of interest rate cuts soon, with all eyes on the Federal Reserve’s policy meeting later this week.

The Indonesian rupiah depreciated 0.3% against the greenback while South Korean won slipped 0.1%.

Most equities in the region, on the other hand, rose, with the markets in Manila jumping 2.1% to lead gains, closely followed by Taipei shares, which surged 1.9%.

The Fed’s two-day monetary policy meeting beginning Tuesday will now take centre stage for the week, where expectations are for the central bank to keep rates on hold.

Investors are already anticipating a delay to rate cuts due to sticky U.S. inflation and as officials, including Chair Jerome Powell, emphasise data dependency.

Market pricing now points to the first Fed rate cut in September, down from an expected June start just weeks ago, with around 30 basis points of easing projected for the year. Any guidance on the central bank’s rate outlook is key.

“While we cannot rule out the tail risk of the Fed putting a rate hike back on the table, should the Fed continue to sound balance in terms of rate guidance, the greenback may even soften along with U.S. rates,” said Fiona Lim, senior FX strategist at Maybank.

Back in Asia, the higher-for-longer U.S. interest rates, along with recent weakness in the regional currencies, are “likely to delay rate cuts in the region till next year or even lead to potential rate hikes this year”, said Lloyd Chan, FX strategist at MUFG.

Both Thai baht and Bangkok stocks slipped 0.2%, each. The Malaysian ringgit edged 0.1% lower, while equities in Kuala Lumpur gained 0.5%.

HIGHLIGHTS:

** Japan’s yen jumps against the dollar on suspected intervention

** Thai March exports fall 10.9% on-year

** Indonesia’s Q1 FDI up 15.5% annually, investment ministry says – Reuters