Most Asian currencies weakened on Friday, led by the Indonesian rupiah and Thailand’s baht, as investors braced for a US jobs report that could help gauge the size and pace of the Federal Reserve’s interest rate increases.
The rupiah, one among the best-performing currencies this year, fell as much as 0.4% and is on track to mark its fifth week of losses. The baht weakened similarly, to give up more than 1.1% this week.
Weekly jobs data released on Thursday prompted market participants to expect the Federal Reserve might be less aggressive than previously expected - which would be a negative for the dollar.
But, given uncertainty ahead of Friday’s monthly job numbers, investors pulled back from riskier Asian assets.
The February US nonfarm payrolls report is expected later in the day, with payrolls showing a likely increase by 205,000 after surging by 517,000 in January, according to a Reuters survey of economists.
Thursday’s data showed US jobless claims rose last week by the most in five months, but the numbers were softer than expected. Futures pricing now implies a roughly 54% chance that the Fed will raise rates by 50 basis points this month, compared with a 70% probability before the data release.
“In addition to the uncertainties about US monetary policy, the recent surge in short-term rates and the persistent curve inversion of the UST yield curve, may tempt many investors to hold additional cash or cash-equivalent instruments, instead of engaging in EM risk assets and being exposed to the potential volatility this may bring,” analysts at Barclays said in a note.
Asian FX defies rate jitters to inch up
In Malaysia, former Prime Minister Muhyiddin Yassin was charged with abuse of power and money laundering over projects launched under his premiership, and accusations that he said were politically motivated.
On Thursday, the country’s central bank kept its benchmark interest rate unchanged at 2.75% for the second consecutive meeting, flagging concerns over an expected slowdown in global growth.
Asia’s only bright spot Malaysian ringgit strengthened by 0.1%, though the currency is eyeing its sixth straight week of losses.
Thailand’s finance minister said Southeast Asia’s second-largest economy is expected to grow by 3% to 4% this year, driven by a rebound in the vital tourism sector.
Next week, the Bank of Indonesia is expected to keep the policy interest rate unchanged, while India’s consumer price index for February is seen to be moderating, according to Barclays.
Equity markets across Southeast Asia were a sea of red, with shares in Mumbai leading the sell-off, on track for their worst day since Feb. 22 and losing nearly 1.5% this week.
Stocks in Manila, Kuala Lumpur, and Seoul all slipped between 0.5% and 1.5%. Shares in China and Taiwan retreated over 1.2% each.
Highlights:
** Indonesian 10-year benchmark yields fall 1.9 basis points to 7.020%
** South Korea Jan. current account logs record monthly deficit
** Fed funds rate is projected to peak just below 5.5% by July.