Most Asian FX and stocks rally on US rate cut optimism

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By Echha Jain

Dec 27 (Reuters) –Most emerging Asian currencies and equities gained on Wednesday, taking cues from a weakening U.S. dollar and a Wall Street rally, as investors remained optimistic that the U.S. Federal Reserve could begin cutting rates as early as next March.

MSCI’s emerging market currency index .MIEM00000CUS rose 0.2% to touch its highest level since April 2022.

MSCI’s emerging market Asia index .MIMS00000PUS advanced 0.5%, and was on track to post a yearly gain, snapping a two-year losing streak.

Investors continue to bet on expectations that major central banks globally could begin easing rates next year, with the Fed leading the way.

“The USD is being shunned by traders and this is allowing emerging market currencies to shine,” said KCM Trade analyst Tim Waterer.

The yield advantage that the U.S. has enjoyed for much of 2023 looks set to be eroded next year once the Fed starts cutting rates, Waterer added.

Thailand’s baht THB=TH strengthened 0.4% to hit its highest level since Aug 3.

The Indonesian rupiah IDR=, one of the best performing currencies in the region so far this year, appreciated 0.5% to hit its highest level in nearly a month. Equities .JKSE gained 0.6% to hit their highest level since September 2022.

The Taiwanese dollar TWD=TP strengthened 0.4%, trading at its highest level since April 20, while stocks .TWII advanced 0.6% to hit their highest since April 20, 2022.

Central banks in Indonesia, Taiwan and the Philippines kept their key interest rates unchanged in their last policy meetings for the year this month, although while sounding less dovish than the Fed.

However, an easing inflation trend in the region is likely to provide these central banks with little breathing room in terms of rates.

Markets will now be watching closely for South Korea’s industrial output figures and Thailand’s trade data due later in the week.

HIGHLIGHTS:

** Indonesian defence minister and presidential candidate Prabowo Subianto cemented his lead in the polls after candidates took part in televised debates

** Vietnam is forecast to have received foreign investment inflows of $23.18 billion in 2023, up 3.5% from a year earlier, the Ministry of Planning and Investment said

** Thailand will increase its minimum wage in January, the government said, confirming a previous deal while planning to raise it further in March

Reporting by Echha Jain in Bengaluru; Editing by Michael Perry