Most Asian currencies shackled by firmer dollar, Fed outlook

BENGALURU (Feb 6): Most Asian currencies hardly budged on Tuesday as the US dollar firmed close to a three-month peak, helped by markets paring back expectations of near-term interest rate cuts from the Federal Reserve.

The Malaysian ringgit retreated 0.3%, and hovered near a three-month low it hit on Monday. The Indonesian rupiah edged 0.2% lower.

A string of robust US economic data, including the bumper payrolls report from last week, and hawkish comments from Fed policymakers have prompted investors to reassess their rate-cut expectations for the year.

Traders are pricing in a 15% chance of a Fed rate cut in March, down from 46% a week ago, and see a 62% probability of a cut by May, according to the CME Group’s FedWatch Tool.

“Most Asian central banks are likely to wait for the Fed to begin cutting rates before moving themselves,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

“The key exceptions are the PBOC, which is already been easing, and possibly the Bank of Thailand, due to the government’s pressure to support the economy,” he added.

The Bank of Thailand is due to announce its policy decision on Wednesday, when it is expected to keep its key interest rate unchanged, and leave it there until early 2025, according to a Reuters poll.

Data on Monday showed that Thai inflation slowed for a fourth straight month in January. That prompted Thailand’s Prime Minister Srettha Thavisin to again call on the central bank to cut interest rates, saying a 25 basis-point rate cut would help people and not stoke inflation.

The Thai baht was last marginally up.

Data in the Philippines showed annual inflation increased at its slowest pace in over three years.

However, the Bangko Sentral ng Pilipinas (BSP), which is set to meet on Feb 15, reinforced its hawkish stance, saying that monetary policy would have to stay “sufficiently tight” until a sustained downward trend in inflation becomes evident.

“If we continue to see inflation moderate well into 2Q, we do expect BSP to begin to change their tune to signal a pivot, possibly by June,” ING analyst wrote.

Most stocks in the region inched higher, tracking a bounce in battered Chinese markets, after recent signs of support from state-backed investors and as authorities have stepped in to stem heavy losses in the market.

Shanghai stocks added 0.8%. Equities in Thailand, Indonesia and India advanced between 0.3% and 0.8%.