Most Asian FX post weekly losses on US rate cut outlook, China gloom

By – Thiruselvam

Most Asian FX post weekly losses on US rate cut outlook, China gloom

Most Asian currencies declined for the week as concerns over China’s shaky economic recovery and a gloomier outlook for U.S. rate cuts soured sentiment.

The Thai baht fell 0.2% on Friday and was down about 2% for the week, heading for its worst weekly fall since Aug. 4, 2023. The Malaysian ringgit was last marginally lower but declined 1.3% for the week.

Trading was thin in Asia with Chinese markets closed for the Lunar New Year break. Markets in Indonesia, Taiwan and South Korea were also closed.

China was in the limelight during the week with authorities announcing a slew of measures to arrest the decline in the stock market after it touched a 5-year low at the start of the week.

“If you look at the fundamentals in the region and how the selloff in Chinese equities did not translate into a bigger selloff in currencies, it shows how markets are slowly coming to compartmentalise some of these Chinese equity risk,” Christopher Wong, FX strategist at OCBC said.

The Chinese yuan held steady against a broadly firmer dollar on Friday and fell marginally for the week.

Sentiment towards riskier Asian assets was also dented after strong economic data from the US and hawkish comments from Federal reserve policymakers prompted investors to reassess their rate-cut expectations for the year.

Anticipation of slower and later-than-expected US rate cuts in 2024, and a reassessment of the cooling U.S. economy, has made foreign investors pivot towards net selling of Asian equities in January.

“In the near term, Asia FXs will be under pressure from growing expectations of ‘slower and shallower’ Fed rate cuts vs what the market had been pricing in … Unclear signs of China’s economic recovery could negatively affect Asia FX as well,” Poon Panichpibool, markets strategist at Krung Thai Bank, said.

Markets now await US inflation data due next week for further clues on rate cuts.

Regional equities also remained under pressure for the week, with shares in Thailand and South Korea eking out marginal gains, while equities in Singapore retreated 1.3%.

However, shares in the Philippines climbed 2.1% for the week. The focus is now on the interest rate decision from the Bangko Sentral ng Pilipinas (BSP) next week.

“We expect the BSP to maintain its hawkish stance, and cut only when it sees a sustained downtrend in inflation,” Barclays analysts wrote.

Meanwhile, Indonesia is set to hold its 2024 presidential election next week, and Gross Domestic Product (GDP) data from Malaysia and Singapore will also remain on investors’ radar. – Reuters

Source – THE STAR

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