BENGALURU: Most Asian equities extended gains on Friday, while currencies held onto to their recent rise following a bout of US Federal Reserve-fuelled optimism after a dovish policy shift and prospects of lower borrowing costs next year.
Equities in India advanced 0.7% to hit a fresh all time high. Stocks in South Korea climbed 0.8% to their highest level in nearly three months, and those in Thailand jumped 1%.
Currencies were steady as the dollar hovered near four-month lows after the Fed kept interest rates unchanged as expected on Wednesday and indicated the tightening of monetary policy is likely over, with a discussion of cuts coming “into view”.
Markets are now pricing in a 75% chance of a rate cut in March by the Fed, according to CME FedWatch tool. They are also pricing in 150 basis points of rate reductions by December 2024.
A positive outlook on Asian currencies is still intact, especially with a Fed pivot, said Christopher Wong, FX strategist at OCBC.
Equities in the Philippines jumped as much as 1% to hit their highest level since Aug. 10, and were on track for their best week since early July.
The peso was largely unchanged. It had added 0.6% on Thursday after falling to a one-month low earlier in the week. It was on track to post its biggest weekly decline since late-August.
While the Fed has flagged possible rate cuts next year, the Bangko Sentral ng Pilipinas (BSP) has said policy would have to stay “sufficiently tight” to bring inflation back to target.
The BSP kept its benchmark interest rate steady for a second straight meeting on Thursday.
The Taiwanese central bank also kept its key interest rate unchanged on Thursday but flagged it would not necessarily follow the Fed in likely cuts to interest rates next year.
“In Asia, several central banks are likely to find comfort in a softer Fed,” Barclays analysts wrote on Friday.
This is especially the case for the BSP and Bank Indonesia (BI), which follow the Fed relatively more closely, they added.
Market participants are now on the lookout for a policy decision from Bank Indonesia next week. The central bank said last month it would maintain its benchmark rate at the current level into 2024 barring any major changes in global dynamics.
“Next week, we expect BI to remain on hold, with its biggest factor for a hike, the IDR, now considered less of a worry,” Barclays analysts added, referring to the rupiah currency.
The rupiah was last quoted at 15,500 per US dollar, having climbed more than 1% on Thursday.
