Asian FX recover lost ground with Fed and China in focus

BENGALURU: Most emerging Asian currencies steadied and stock markets firmed on Tuesday after dovish comments from a senior US central bank official, while investors watched for any risk of the Israel-Hamas war leading to a wider conflict.

The Malaysian ringgit, the Indian rupee, and the Philippine peso inched up 0.1% each by 0610 GMT. The Indonesian rupiah and the South Korean won were largely unchanged.

Thailand’s baht, however, weakened as much as 0.7%. The recent unprecedented rise in oil prices has increased the prospects of higher import bills for net-importing countries like Thailand and India, adding to inflationary woes.

“I maintain my call of stronger THB, possible to reach 34.25-34.75 level by the end of this year, from weakness in the USD, improved external demand... and some inflows from foreign investors once concerns over fiscal stability ease,” said Poon Panichpibool, a markets strategist with Krung Thai Bank.

Stock markets across Southeast Asia rose as interest-rate jitters eased globally after Philadelphia Federal Reserve President Patrick Harker said on Monday the US central bank should not create new pressures in the economy by increasing the borrowing cost.

Market participants were keenly awaiting more speeches by central bankers this week, including Fed Chair Jerome Powell, to gauge the outlook for monetary policy.

Shares in Seoul and Manila advanced more than 1%, while those in Bangkok, Jakarta and Kuala Lumpur added between 0.2% and 0.8%.

The dollar index, which measures the US currency against six rivals, inched 0.056% higher to 106.32 after dropping 0.36% on Monday.

“However, the peak in the USD should be arrived by the FOMC November meeting if the Fed decides to maintain the policy rate as the market expects now. I think it could further reduce the probability of a Fed rate hike at the December meeting from around 30% now to much lower,” Panichpibool said.

Investors were also awaiting gross domestic product, retail sales, industrial production, and other data from China, Southeast Asia’s largest trading partner, on Wednesday for further direction.

The South Korean and Indonesian central banks are expected to leave interest rates unchanged when they hold policy meetings on Thursday, according to Reuters polls.

In India, regular central bank intervention is preventing the rupee from weakening past a record low of 83.29 per dollar hit in October last year, according to traders.