Emerging Asian currencies traded in narrow ranges on Tuesday, ahead of US inflation data and the Federal Reserve’s interest rate decision, while the yuan fell after China’s central bank cut its short-term lending rate for the first time in 10 months.
The South Korean won strengthened 1% and Thailand’s baht appreciated 0.3%.
Malaysia’s ringgit, the Philippine peso, the Indian rupee and Indonesia’s rupiah were flat.
Investors are keenly awaiting US consumer price index (CPI) data that is expected to show inflation cooled slightly in May, with core prices likely remaining sticky.
This may provide room for the Fed to pause its aggressive tightening cycle at this week’s Federal Reserve Monetary Policy Committee (FOMC) meeting.
The upcoming CPI figures will “be the final piece of data to drive some last-minute adjustment in rate expectations ahead of the upcoming FOMC meeting,” said Yeap Jun Rong, a market analyst at IG.
Markets currently see a 81% chance that the Fed will hold rates at the 5%-5.25% range on Wednesday, while pricing in a 71% chance of a rate hike in July, according to the CME FedWatch tool.
In a bid to prop up a stalling post-pandemic recovery in China, the country’s central bank cut its seven-day reverse repo rate by 10 basis points to 1.90% from 2.00%, when it injected 2 billion yuan ($279.18 million) through the short-term bond instrument.
The Chinese yuan, or renminbi (RMB), weakened 0.1% against the US dollar to hit a more than six-month low after the rate decision.
“Deposit rate cuts is the major reason why the RMB is falling today.
We expect there to be a loan prime rate cut as well, likely putting some pressure on the currency,“ said Wei Liang Chang, a macro strategist at DBS Bank.
“To some extent Asian currencies will have to adjust to the weaker RMB because China is the largest trading partner for many countries across the region, but so far the impact seems rather muted.”
In India, data on Monday showed annual retail inflation cooled to a more than two-year low of 4.25% in May, moving closer to the Reserve Bank of India’s target of 4%.
Most stock markets across emerging Asia rose, tracking Wall Street’s overnight gains. Equities in Thailand, Taiwan and South Korea advanced between 0.3% and 1.5%.
Meanwhile, Singapore’s benchmark index and stocks in Kuala Lumpur dropped 0.6% each.
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