Asian currencies and stocks kicked off the week on the backfoot, as investors priced in more policy tightening from the US Federal Reserve after robust data, with the Philippine peso and Malaysian ringgit the hardest hit.
Malaysia’s ringgit fell as much as 0.9% to 4.47 to the dollar, its lowest level since Nov. 30, 2022. The Philippine peso led the losers, down 1.1%.
Markets in Asia were responding to the strong US personal consumption expenditures (PCE) data, a metric closely watched by the Fed, in January, prompting traders to price in US policy rates moving even higher and for longer.
“I think there could be more interesting data later this week with the Asia and China PMI. In the meantime, I suppose the currency movements are more driven by the dollar side rather than the local currency side,” said Jeff Ng, a senior currency analyst at MUFG Bank.
The dollar index rose 0.6% on Friday, supported by the consumer spending data, to 105.23. The index has largely clung to those levels, and was last at 105.24.
Asian bonds tracked the US benchmark yield, which rose on Friday and was last seen at 3.9374%. Singapore’s yield was up 10.8 bps, and Indonesia’s yield up 2.6 bps.
Malaysia’s prime minister on Friday unveiled plans to narrow the fiscal deficit to 5% by scaling back spending and taxing capital gains and luxury goods.
Analysts at RHB Group said the new budget was in line with expectations, and “mildly expansionary with no major changes in the policies.”
Markets are now awaiting the release of PMI numbers on Wednesday for several Asian economies.
Most Asian currencies hit 1-month lows as dollar firms after US CPI data
Indonesia’s rupiah was down 0.4% at 15,275 to the dollar, its lowest level since mid-January. The Thai baht also shed 0.5%.
China’s yuan fell a modest 0.1%, having lost 1.3% last week.
Analysts at Maybank said US-China geopolitical tensions were weighing on the currency.
The US warned China of “real costs” if it supplied arms to Russia in its war against Ukraine.
Stocks in Asia were also under pressure, with Philippine , Thai and Indonesian markets down between 0.3% and 1.7% each. South Korean stocks slumped 1.2%, while the won weakened 1.1%.
Markets in Vietnam were closed for a public holiday.
Highlights:
** Nigeria elections over weekend expected to be the closest in country’s history, state-by-state results expected
** India Q3 GDP likely slowed further in December quarter, according to Reuters poll; data expected on Tuesday
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