BANGKOK: Asian currencies and equities firmed on Monday, as investors dialled back bets of a bigger interest rate hike by the U.S. central bank this month.
Major Wall Street indexes rallied on Friday after two Federal Reserve officials indicated the central bank would raise interest rates by 75 basis points at its July 26-27 meeting rather than a full percentage point hike.
“Friday’s relief rally was fuelled by the notion that the Fed would hike rates by ‘only’ 75 basis points this month rather than 100 basis points. That said, recent data suggests the Fed still has a long way to go in terms of tightening,” analysts at private investment firm BBH said.
“On the other hand, Chinese GDP (gross domestic product) data came in weaker than expected, so the global backdrop for EM remains challenging.”
China’s economic growth slowed sharply in the second quarter and missed expectations as widespread lockdowns to curb COVID-19 cases hit consumer spending and industrial activity.
Equities in South Korea climbed 1.8% to lead gains in Asia, followed by Singapore stocks.
Among currencies, the South Korean won climbed 0.7% to be the top gainer. The Singapore dollar rose 0.1%, while the rupiah was largely flat.
A combination of aggressive Fed interest rate hikes and wobbling economies in Europe and China helped the greenback scale a two-decade high this year.
“USD bulls could turn cautious this week, but this should not be mistaken for a collapsing USD. And certainly not a durable inflection in Fed-driven bout of USD strength that continues to prevail,” said Vishnu Varathan, head of economics and strategy for Asia at Mizuho Bank.
Meanwhile, Indonesia scrapped its export levy for all palm oil products until Aug. 31 to help boost exports and ease high inventories, finance ministry officials said, adding the move would not disrupt government revenue.
Indonesian 10-year benchmark yields climbed 1.6 basis points to 7.381% ahead of a Bank Indonesia (BI) meeting where analysts expect the central bank to stand pat on interest rates.
BI Governor Perry Warjiyo, however, said on Sunday the central bank would not hesitate to hike rates when inflation starts to pick up fundamentally.