(Jan 2): Most Asian currencies started the year on the backfoot on Tuesday as investors cautiously awaited key economic data from the US and Asia for clues on the interest rate trajectory.
The South Korean won retreated nearly 1% while the Indonesian rupiah depreciated 0.5%.
Equities in Taiwan, which rose nearly 27% in 2023 and posted their best year since 2009, retreated 0.4% on Tuesday. South Korean stocks climbed 0.6% to hit their highest level since June 3, 2022.
Market participants are awaiting a slew of economic data from the US during the week including data on job openings and nonfarm payrolls.
“I think the market will likely be in a wait-and-watch or even on a profit-taking mode ahead of important economic data from the US,” said Poon Panichpibool, markets strategist at Krung Thai Bank.
Upbeat job growth figures could boost the US dollar and 10-year US Treasury yields could hover above 4% level again.
In this scenario, there would be some selling pressure on emerging market assets especially foreign exchange, Panichpibool added.
Minutes from the Federal Reserve’s last policy meeting in December, expected to provide clues on the trajectory of rate cuts in 2024, are also due on Thursday.
Markets are pricing in an 86% chance of rate cuts to start from March, according to CME FedWatch tool, with more than 150 basis points (bps) of easing anticipated in the year.
Although the Fed is expected to start easing interest rates in 2024, most Asian central banks are yet to signal interest rate cuts this year.
“We think most of them will still continue to keep all of the status quo for now,” Christopher Wong, FX strategist at OCBC said.
Inflation data from most Asian countries signalled an easing trend with Indonesia’s annual inflation rate cooling more than expected in December, while data from South Korea last week showed annual consumer inflation easing for a second month in December.
The easing inflation trend in Asian countries gives central banks breathing room, OCBC’s Wong said, adding that it is doubtful they will cut rates.
“I think it’s still too quick for central banks to react on any one data point,” he added.
Inflation data from the Philippines and Thailand are expected later this week.
The Philippine peso, which snapped a two-year losing streak in 2023, was down 0.3% on Tuesday. Thai stocks jumped as much as 1.2% to hit their highest level since Oct 18.
The Singapore dollar was flat while equities fell 0.3%. Data showed the country’s economy grew 2.8% in the fourth quarter year-on-year, faster than some economists had expected and helped by improvements in construction and manufacturing.
