Asian FX subdued after mixed US data; equities set for weekly gains

MOST Asian currencies were subdued on Friday as mixed U.S. data solidified bets of fewer rate cuts, while regional stocks were on track to end the week higher due to gains in South Korea and Taiwan from global tech earnings.

Emerging market currencies have recovered slightly this week after suffering steep losses earlier in the month when investors walked away from riskier assets due to uncertainties from heightened tensions in the Middle East.

The broad MSCI emerging markets currency index was up 0.2% for the week so far, compared to declines of 0.4% and 0.5% in the previous two weeks, respectively.

The currencies were pressured on Friday by data showing the U.S. economy grew at its slowest pace in nearly two years in the first quarter, while inflation picked up, suggesting that the Federal Reserve would not cut interest rates before September.

Adding to the downbeat regional mood, the Japanese yen hit yet another 34-year low on disappointment that the Bank of Japan held rates steady without giving clear guidance on its future rate path.

The South Korean won lost 0.3% on Friday, but was on track to post its first weekly gain in seven weeks.

In Indonesia, the rupiah extended losses, despite the central bank’s surprise quarter-point rate hike on Wednesday to support the currency. Still, the rupiah has slightly distanced itself from a four-year low hit last week with a 0.2% weekly gain so far against a 2.6% decline last week.

In contrast, the Philippines’ finance minister said the central bank has no plans to hike interest rates despite the peso’s weakness against the dollar. The peso gained 0.2%, but has lost 2.9% so far in April and is on course for its fourth straight weekly loss.

“I am not convinced that just because of exchange rates (Asian) central banks will start hiking rates again, as some central banks like the Reserve Bank of India (RBI) doesn’t seem to be too minded that the currency is on the depreciation trend,” Alvin Tan, head of Asia FX strategy at RBC Capital Markets said.

Meanwhile, gains in U.S. tech stocks after upbeat quarterly earnings from giants Alphabet and Microsoft buoyed tech-heavy South Korean and Taiwan stock markets.

South Korean stocks rose as much as 1.3%, while shares in Taiwan gained 1.9%, set for their best week since March 4.

Singapore stocks inched 0.2% lower on Friday, but were eyeing their best week since January 2021 with a 3.5% rise so far. Stocks in Thailand were on track for the best week since August 2023.

The Vietnamese dong was 0.1% higher, further distancing from a record low hit last week.

HIGHLIGHTS:

** BOJ keeps ultra-low rates, projects inflation near 2% for years

** Singapore c.bank sees inflation “falling more discernibly” in Q4 – Reuters