Asian currencies: Philippine peso drops to over 1-1/2-year low

BENGALURU: Most emerging Asian currencies and equities retreated on Tuesday as recent comments from US Federal Reserve officials cast a shadow of doubt over the timing of the potential US interest rate cuts this year.

The Philippine peso declined as much as 0.5% to 58.130 per US dollar, its lowest since November 2022.

MSCI’s Asia equity index excluding Japan fell up to 1%, a day after it rose to its highest in more than two years after China unveiled substantial measures to support its property sector last week.

Equities in China declined 0.4% while stocks in Malaysia retreated 0.3%, a day after it hit over a three-year high.

Several US Federal Reserve officials on Monday signalled continued caution on interest rate policy and inflation despite data last week showing easing consumer prices in April, putting a dent in risk sentiment towards Asian currencies and equities.

“Fed officials keeping a cautious tone is understandable, as the inflation outlook is highly uncertain,” Frances Cheung, a rates strategist at OCBC said.

They may need to see a couple of months easing in inflation to feel confident enough to start cutting rates, Cheung added.

“As long as the risk of the Fed pivoting back to tightening is seen as low, the external environment shall be favourable for Asian assets in general,” Cheung said.

Markets currently factor in about 41 basis points of Fed rate reductions this year, with a quarter-point cut fully priced in for November.

Markets will be focusing on the minutes of the Fed’s last policy meeting this week for clues on the timing of rate cuts.