Asian currencies were mixed on Friday, with the Singapore dollar leading the upside, as continued interest rate hikes by major central banks globally and a steadfast hawkish stance fuelled global recession worries and kept risk appetite in check.
The US Federal Reserve hiked interest rates by a widely expected 50 basis points (bps) on Wednesday, and the Bank of England and the European Central Bank followed suit and maintained their hawkish stance to tame soaring inflation.
Analysts at ANZ research, however, highlighted 2023 as a favourable year for Asian currencies and fixed income on expectations that inflation will ease, with a majority of central banks seen likely to pause their tightening cycle as early as the first quarter.
In Southeast Asia, the Singapore dollar strengthened 0.4% by 0258 GMT, while the Philippine peso and Thailand’s baht firmed 0.2% and 0.1%, respectively. Singapore’s non-oil domestic exports missed analysts’ estimates and fell sharply in November, marking a decline for a second consecutive month.
However, analysts at Barclays say core inflation likely edged down in November as sequential momentum continued to cool gradually, adding that headline inflation may show a slightly lower reading next week.
Meanwhile, the Philippine central bank said it backed the creation of a sovereign wealth fund being pushed by President Ferdinand Marcos Jr, despite having earlier raised concerns about transparency over its governance.
Asian currencies get lift from tempered Fed rate view
Bangko Sentral ng Pilipinas Governor Felipe Medalla said the likelihood the central bank will not increase its policy rates at upcoming meetings was “extremely low” as it looks to ensure inflation ran within its 2-4% target range next year.
Among other currencies, the Malaysian ringgit and Indonesian rupiah weakened 0.1% while the Indian rupee largely traded flat.
Indonesia, Southeast Asia’s largest economy, booked a larger-than-expected trade surplus last month as imports unexpectedly contracted alongside slowing exports, according to official data.
Analysts at Barclays expect Bank Indonesia to hike policy rates by a modest 25 bps when it meets next week.
“Another back-to-back policy rate hike is likely – our base case is for 25bp – but we note that this is a close call, with a significant risk of another 50bp move,” they added.
Thailand’s central bank chief said that while its economy continues to recover it still faces challenges, adding the bank is ready to adjust the pace of interest rate hikes if necessary.
Equities in Southeast Asia were largely trading lower with those in Kuala Lumpur and Bangkok retreating 0.1% while those in Manila and Jakarta shedding 0.6% and 0.4%, respectively.
Highlights:
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Indonesian 10-year benchmark yields rise 7.1 basis points to 6.930%
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Taiwan central bank raises benchmark interest rate to 1.75%
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J.P.Morgan raises China’s 2023 growth forecast to 4.3%
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