Asia's currencies and stocks rise after Fed sticks to dovish stance

Indonesia's rupiah led Asia's emerging currencies higher on Thursday and stocks rallied after the Federal Reserve pledged to keep interest rates near zero for a while yet despite an expected rise in inflation.

Stock markets in the Philippines, South Korea and Singapore all climbed around 1%, clinging to the news that the Fed won't be winding back stimulus despite a stronger US economic outlook and inflation which is set to eclipse the central bank's 2% target.

However, 10-year Treasury yields continued to rise.

They were trading at 1.6726%, just shy of a 13-month high hit before the Fed's announcement, helping the dollar recoup some of its earlier losses and limiting gains in Asia's risk-sensitive currencies.

Analysts at DBS view the post-Fed dollar sell-off as investors trying to make some profit on gains made in the lead up to the meeting. Asia's higher-yielding bonds also largely stuck to tight ranges.

US yields have risen in recent months on expectations that a faster rebound in the US economy, buoyed by fresh stimulus and a vaccination programme, could fuel inflation and prompt the central bank to begin unwinding ultra-loose monetary policy.

But Citi analysts said a general outperformance of the US economy and higher inflation, among other factors, "may keep (the) US curve steep and prevent lasting relief for Asia fixed income," Citi analysts said.

Central banks in Indonesia and Taiwan are due to hold policy meetings later on Thursday, with both expected to keep interest rates steady.

Indonesia's rupiah advanced 0.4% on the dollar and stocks were up 0.9% after the Fed overnight and ahead of Bank Indonesia's (BI) decision, due at around 0700 GMT.

Bank Indonesia is expected to keep its 7-day reverse repurchase rate unchanged at a record low of 3.50%, after a bout of monetary stimulus during the pandemic and as the currency has recently come under pressure. BI has slashed rates by 150 basis points over six cuts since the pandemic started.

"BI is worth watching for the rhetoric given that it may be more grudgingly on hold," Mizuho Bank said of BI, that has prioritised currency stability.

Stocks in Taiwan climbed close to 1% and the dollar was marginally higher.

The rising local dollar, which has strengthened over 6% in the year, has become a source of concern for the export-reliant economy. Taiwan's economic growth last year was supported by global demand for its tech products from an increasing number of people working from home during the pandemic.

Taiwan's central bank governor has also acknowledged the island may be labelled a currency manipulator by the United States, having met Washington's three main criteria for such a decision. Last week, data showed a large spike in currency intervention spending last year.

In Malaysia, stocks were up half a percent and the ringgit nearly a third of a percent, after the government unveiled a fresh round of stimulus on Wednesday, totalling 20 billion ringgit ($4.87 billion).