Most emerging Asian currencies were subdued on Monday as the Federal Reserve-fuelled risk rally faded after investors dialled back expectations of imminent interest rate cuts by the US central bank on recent comments from policymakers.
The Malayian ringgit, the region’s worst-performing currency this year, edged 0.3% lower.
The Thai baht and the Philippine peso also inched 0.2% lower.
Regional equities were mixed, with those in Singapore and Thailand down 0.4% and 0.2%, respectively. Stocks in Philippines advanced 0.5%.
“Risk-rally is facing a bit of a reality check as markets weigh recent comments from Fed officials,” said Christopher Wong, currency analyst at OCBC. “Expectations for Fed loosening can overshoot and when it corrects, the USD could still be subjected to rebound.”
New York Fed President John Williams said on Friday it was premature to speculate about interest rate cuts in March 2024. The dollar was still hovering near four-month lows on Monday.
The Indonesian rupiah, South Korean won and the Singaporean dollar were all flat. The Taiwanese dollar was down 0.1%.
Regional stocks and currencies received a boost last week after the Fed kept interest rates unchanged as expected and signalled prospects of lower borrowing costs next year.
Most Asian currencies extended gains
Echoing the Fed, the Philippine central bank kept its benchmark interest rate steady for a second straight meeting last week, and Taiwanese central bank kept interest rate unchanged on Thursday.
However, both central banks were less dovish than the Fed, with the former not convinced about the downward trend in inflation holding and the latter flagging it would not necessarily follow the Fed in likely rate cuts next year.
The focus is now on Indonesia’s interest rate decision later this week. The central bank said last month it would maintain its benchmark rate at the current level into 2024 barring any major changes in global dynamics.
“On the one hand, headwinds to growth have mounted as Indonesia’s real policy rates (are) the most restrictive in ASEAN; as well as by historically,” Vishnu Varathan of Mizuho Bank wrote.
“On the other hand, the tentative and nascent recovery of rupiah traction warns against premature easing.”
Varathan’s base case is for Bank Indonesia to stand pat at its last meeting in 2023.
Back in the US, investors will also focus on core personal consumption expenditure (PCE) index data, the Federal Reserve’s preferred measure of inflation, scheduled for release on Friday.
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