Asian currencies, stocks subdued; all eyes on US inflation data

The Philippine peso and the Thai baht fell most among emerging Asian currencies against the greenback on Wednesday, while equities were also under pressure ahead of crucial U.S. inflation data that will likely offer more clarity on the timing of rate cuts.

The peso depreciated as much as 0.5 percent against the U.S. dollar to hit its lowest level since Nov. 3. Data showed the country’s trade balance in November remained in substantial deficit.

The Indonesian rupiah fell 0.4 percent to its lowest in nearly a month.

The baht slipped 0.2 percent, paring losses from earlier in the session, when it had fallen as much as 0.9 percent to 35.20 per U.S. dollar, its lowest level since Dec. 14.

Thai Prime Minister Srettha Thavisin said he discussed interest rates in a meeting with the country’s central bank governor but has no power to interfere in monetary policy decisions.

READ: Thai PM says central bank rate hikes no good for economy

This comes after Srettha, who is also finance minister, urged the central bank earlier this week to consider cutting interest rates to help the economy, with inflation at very low levels.

Among equities, Singapore stocks retreated as much as 1.2 percent, followed by equities in Manila, which slipped as
much as 1.1 percent.

Traders are awaiting U.S. inflation data, due on Thursday, to assess the timing and size of any Federal Reserve interest
rate cuts in 2024.

“A softer (inflation) print should see goldilocks trade returning while USD and UST yields can ease off. This should
help weigh on USD/AxJs,” said Christopher Wong, a currency strategist at OCBC.

Still, higher inflation is not ruled out, Wong added, which should see further unwinding of aggressive Fed rate cut bets.

Rate cut bets

Expectations that the Fed could be cutting rates as soon as March have been slowly decreasing. Markets are currently pricing
in a nearly 68 percent chance that the Fed could begin easing rates in March, the CME FedWatch Tool showed.

READ: Asian stocks waver as traders ponder rate cut bets

Back in Asia, the won slipped as much as 0.5 percent to its lowest level since Dec. 7, 2023. Stocks in Seoul declined for a sixth straight session, losing as much as 0.8 percent to hit their lowest level since Dec. 14, 2023.

The Bank of Korea (BOK) is set to announce its key base rate on Thursday. Economists are expecting the BOK to keep the key policy unchanged until at least Q3 despite some concerns around financial stability, a Reuters poll found.

“While we do not expect BOK to cut rates just yet as inflation pressures remain, a shift towards a neutral stance may imply consolidation for USD/KRW in the short-term,” analysts at DBS wrote.

READ: Most Asian currencies, stocks pull back as rate cut rally dissipates

Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui Banking Corp, said he sees most central banks in the region standing pat as well, likely in line with the BOK, and think about rate cuts later in the year.

Hence, there would be limited impact on the emerging Asian currencies for now, he said.

Meanwhile, the Taiwanese dollar fell 0.3 percent while stocks in Taipei retreated 0.4 percent. Taiwan goes to the polls on Saturday to elect a new president and parliament.