Asian currencies, stocks strengthen as Fed hints dovish stance

ASIAN emerging market currencies and equities climbed higher on Friday after the Federal Reserve indicated it would maintain a dovish tilt, while traders look ahead to the U.S. nonfarm payrolls data later in the day.

The South Korean won was the biggest gainer in the region, appreciating nearly 1% against the greenback. The Indonesian rupiah gained 0.6%.

Among equities, Taiwan stocks rose 0.5% to be the top gainer in the region, while Malaysia stocks added 0.4%.

Risk sentiment improved in the emerging markets after U.S. Fed Chair Jerome Powell said earlier in the week that while recent inflation readings mean it will likely take longer than expected for central bank officials to become comfortable that inflation will resume its decline, interest rate hikes also remained unlikely.

Markets have consistently scaled back the timing and amount of rate cuts this year from the Fed as inflation has proved to be sticky.

After expecting the first cut to come by March at the start of the year, markets now see a 60.3% chance the Fed will announce its first interest rate cut in September, according to CME’s FedWatch Tool.

“Rate cuts by the U.S. Fed will provide EM Asian central banks with the space to also lower their domestic interest rates, thereby providing a tailwind for a pickup in economic growth,” said Lloyd Chan, FX strategist, MUFG.

U.S. economic data on Thursday showed the labour market remains tight, ahead of key government payrolls data due later in the day.

Economists polled by Reuters forecast 243,000 jobs, with estimates ranging from 150,000 to 280,000.

Back in Asia, the Thai baht was flat while equities in Bangkok advanced 0.3%. The country’s headline inflation rate in April rose for the first time in seven months, but remained below the central bank’s target range of 1% to 3% for a 12th consecutive month.

The Malaysian ringgit gained 0.3% while the Philippine peso inched 0.1% higher. Seoul stocks jumped 0.3% while Singapore stocks were up 0.4%

HIGHLIGHTS:

** Bank of Korea governor says inevitable to upgrade GDP forecast

** POLL-Indian rupee to keep in a tight range amid constant RBI intervention

** Residents fear for safety as Indonesia’s Mount Ruang volcano erupts – Reuters