What’s going on here?
Asian currencies were steady on June 12, 2024, with the South Korean won and Malaysian ringgit making slight gains, while the Singaporean dollar, Taiwanese dollar, and Chinese yuan showed minimal movement against the US dollar.
What does this mean?
Investors are eyeing key US inflation data and upcoming monetary policy decisions from the Federal Reserve and the Bank of Thailand. Despite Thai Prime Minister Srettha Thavisin’s calls for rate cuts to boost the economy, the Bank of Thailand is expected to keep its interest rate unchanged, according to a Reuters poll of 27 economists. Market predictions indicate the Federal Reserve is likely to maintain its current interest rate, with the probability of a rate cut in September now at around 52%, according to the CME FedWatch tool. This ‘wait-and-see’ approach by Asian central banks underscores the uncertainty surrounding US monetary policy and its ripple effects.
Why should I care?
For markets: Volatility on the horizon.
Low-yielding currencies like the South Korean won, Thai baht, and Malaysian ringgit may face volatility as markets grapple with fluctuating expectations from the US Federal Reserve’s decisions, analysts at MUFG highlighted. Recent stock movements reflect this uncertainty: Indonesian stocks in Jakarta fell as much as 0.5% to their lowest level since mid-November 2023, while Kuala Lumpur saw a 0.2% rise and Taiwanese stocks surged nearly 0.8%.
The bigger picture: Central banks’ balancing act.
Bank Indonesia’s commitment to using all monetary instruments to stabilize the rupiah and the Philippine central bank’s aim to keep inflation near the target midpoint are crucial in navigating current economic turbulence. As Asian central banks adopt a cautious stance, their strategies will play a pivotal role in maintaining currency stability amidst global monetary policy shifts.
