What’s going on here?
Most Asian currencies climbed on the back of a weaker dollar, with stock markets in Asia eyeing weekly gains thanks to anticipated US Federal Reserve rate cuts.
What does this mean?
Several Asian currencies strengthened against the dollar this week. The South Korean won rose by 0.2%, the Singapore dollar and Taiwanese dollar each edged up by 0.1%, and the Indonesian rupiah also saw a minor gain. Even the Philippine peso held steady as annual inflation dipped for the first time in five months. These gains come amid heightened expectations that the Fed will cut interest rates later this year, which would make emerging market currencies more attractive. Meanwhile, South Korean stocks surged to their highest levels since January 2022, thanks to a promising earnings forecast from Samsung. The Taiwanese stock market also hit a new peak, while Indonesian and Manila shares posted solid gains.
Why should I care?
For markets: All eyes on the Fed.
Market participants are eagerly awaiting the US payrolls data to gauge the Fed’s next move, with traders now assigning a 73% chance of a rate cut in September, up from 66% last week, according to the CME’s FedWatch tool. This expectation has bolstered Asian currencies and stocks, making the region an attractive spot for investors looking to capitalize on a more dovish US monetary policy.
The bigger picture: A dance of central banks.
As the US Fed contemplates rate cuts, attention in Asia shifts to the region’s own central banks. Next week brings key policy rate decisions from South Korea and Malaysia, China’s inflation data for June, and Singapore’s second-quarter economic growth estimates. In the Philippines, analysts suggest that Bangko Sentral ng Pilipinas could start cutting rates from August, contingent on maintaining currency stability. Meanwhile, Thailand’s central bank remains in a tug-of-war with the government over rate reductions as the economy slowly recovers.
