Asian currencies tepid as traders brace for central bank meetings

BENGALURU: Most Asian currencies were on the back foot on Monday, ahead of a week laden with central bank meetings, after a strong jobs report from the world’s largest economy weighed on hopes of an interest rate cut in June.

The closely watched employment report late on Friday showed US job growth came in beyond market expectations, pouring cold water on the narrative that the Federal Reserve will start slashing rates soon.

The US dollar index was firm at 104.33, as of 0720 GMT.

Traders are pricing in a 48.1% chance of a rate cut in June, down from about 60% last week, according to the CME FedWatch tool.

“In particular, EM currencies are prone to a double whammy of a strong USD and high UST yields,” said Vishnu Varathan, Mizuho Bank chief economist Asia ex-Japan in a client note.

Investors will be focused on central bank meetings this week and inflation prints, especially from the United States. The tone and data will likely set the outlook for interest rates starting, in Asia, with the Philippine central bank on Monday.

The Philippine peso was unchanged after the central bank left its key policy rate unchanged at 6.5% for the fourth straight meeting, while stocks recouped some of early losses to trade marginally lower.

The central bank had raised rates by 450 basis points since May 2022, including in an off-cycle hike in October.

Other central bank meetings in the region this week include Thailand, Singapore and South Korea.

Separately, Thailand’s Prime Minister said the central bank should cut its interest rate at least a quarter point in its April 10 meeting, building on the dissenting opinions over rate cuts between the government and central bank.

The Reserve Bank of India had held its lending rate unchanged at 6.5% last week.

“One consequence of this imposed macro-stability risk is that EM (Asia) central banks are considerably more constrained in the option to cut rates ahead of the Fed, especially with fluid Fed pivot pushback,” Varathan added.

Other currencies such as the Singapore dollar, Malaysian ringgit, South Korean won and Taiwan dollar traded flat to slightly lower.

Chinese markets reopened after a long weekend, with both shares and the yuan trading down 0.7% and marginally lower, respectively. The Chinese currency touched a 4-1/2-month low last week, prompting central bank authorities to intervene in the market. Most Asian equities rose, with shares in Kuala Lumpur, Taipei , Seoul and Mumbai trading 0.1% to 0.7% higher. Markets in Indonesia and Thailand were closed due to public holidays.