BENGALURU (Dec 11): Asian emerging currencies and equities retreated on Monday ahead of key central bank meetings during the week, with investors’ mainly focus on US inflation reading and the Federal Reserve’s (Fed) final policy meeting for the year.
The Indonesian rupiah weakened 0.6%, while the Taiwanese dollar retreated 0.4% and the Philippine peso declined 0.3%.
Data from Thailand, Philippines and South Korea last week showed that inflation had eased in November, likely providing central banks a little breathing room in terms of rates.
The Philippine central bank, however, cautioned it was necessary to keep monetary policy settings “sufficiently tight”. The Bangko Sentral ng Pilipinas’ (BSP) monetary policy decision is due on Thursday.
The Taiwanese central bank is also expected to leave its policy rate unchanged on Thursday, according to a Reuters poll.
“I expect most Asian central banks to maintain their policy rate at the current levels,” said Poon Panichpibool, markets strategist at Krung Thai Bank.
However, he added that if China’s economic recovery turns “much worse than expected, most Asian central banks could decide to lower policy rate from the current level as well and the magnitude of rate cuts would depend on the severity of China’s economic downturn”.
The week could be quite volatile for most asset classes especially foreign exchange, and it depends on the Fed’s economic outlook and its monetary policy stance, Panichpibool added.
The Fed is expected to keep rates in the current 5.25%-5.50% range in its monetary policy decision later this week, leaving policy on hold since July.
“I don’t think that the Fed will want to raise speculation about rate cuts now, but at the very least, the tone I think will be balanced to provide the Fed with optionality for next year,” Michael Wan, senior currency analyst at MUFG Bank said.
US inflation data for November is due on Tuesday, with the market expecting consumer prices to continue easing on an annual basis.
Data showed last week US job growth accelerated in November, causing traders to reevaluate expectations of Fed rate cuts early next year.
Back in Asia, the Chinese yuan retreated 0.2% while equities slid 0.8% after data showed persistent deflationary pressures in Southeast Asia’s largest trading partner, increasing concerns over its economic recovery.
Equities in Philippines and Singapore retreated 0.8% and 0.7%, respectively.
Indonesian equities declined 0.6%, with shares of GoTo Gojek Tokopedia falling more than 16% after it announced that China’s TikTok will invest US$1.5 billion (RM7.02 billion) to become controlling shareholder of an e-commerce unit of GoTo.
