Asian currencies inch higher ahead of US inflation data

Asia's emerging market currencies crawled higher on Thursday as investors awaited a crucial US inflation report due later in the day that could provide a clearer signal on when the Federal Reserve may begin discussing tapering its monetary stimulus.

The Taiwan dollar led gains with a 0.3% climb, while most others were trading roughly flat. The Indonesian rupiah, one of emerging markets' highest-yielding currencies, firmed around 0.1%.

Traders have adopted a cautious approach while dealing with Asia's risk-sensitive currencies ahead of the inflation report, given the pace of the US economic recovery and vaccination campaign, prompting some to question whether the Fed should begin discussing early tapering as price pressures emerge.

US 10-year Treasuries yields, which have helped prop up the dollar in recent months, were at 1.4789% in late Asian trade, while a further retreat below 1.47% could take yields to the lowest since March 4.

Asia's emerging stocks markets also rose on Thursday, with Taiwan's benchmark up 1.1%, while Indonesian equities were the only other to cross gains of more than half a percent.

"Today's CPI numbers could prove scorching," Eugene Leo, a rates strategist at DBS said, pointing to expectations for a 0.4% month-on-month rise.

"However, we do not think that this would be sufficient to change the transitory price pressures narrative that the Fed has painted."

The Fed has stuck to its line that price pressures are transitory and monetary stimulus will stay in place for some time yet, while some analysts have also pointed to payrolls data last week that showed hiring did not grow as fast as expected.

The data precedes the Fed policy meeting next week, while locally the central banks of Indonesia, Taiwan and Japan will also meet. The week after that is the Philippines' turn.

Singapore stocks crept up 0.3% as the city-state heads towards the end of month-long curbs on gatherings. Analysts said details of the reopening could stoke further gains.

"There's potentially always going to be some sort of positive knee-jerk reaction, just like there was a negative knee-jerk reaction when this heightened-alert phase was announced," said Adrian Loh, head of research at brokerage UOB Kay Hian.

He added that that any reaction might focus on locally-exposed REITs.

Helping to boost Indonesian shares were retail sales figures from April that expanded for the first time in 17 months.

The benchmark index is up about 2.6% so far this month, while the rupiah has appreciated slightly and bond yields have remained relatively stable. Yields did fall on Thursday, though.

HIGHLIGHTS

** Indonesian 10-year benchmark yields fell 9.2 basis points to 6.345%

** Comfortdelgro Corp Ltd and Singapore Airlines Ltd led gains in the city-state, followed by SATS Ltd

** As Fed taper looms, global central banks eye their own exits from stimulus