Asian currencies, stocks subdued, eyes on US inflation data

Asian currency decline: Emerging Asian currencies experienced significant declines against the US dollar on Wednesday, with the Philippine peso and Thai baht leading the downturn. Concurrently, equity markets also faced pressure, anticipating crucial US inflation data sets to clarify the potential timing of rate adjustments.

The Philippine peso depreciated by as much as 0.5 per cent against the US dollar, hitting its lowest point since November 3, attributed in part to the country's persisting substantial trade deficit in November. Meanwhile, the Indonesian rupiah dropped by 0.4 per cent, marking its lowest value in nearly a month.

In a similar vein, the Thai baht slipped by 0.2 per cent, recovering slightly from earlier losses when it had plummeted by up to 0.9 per cent to reach 35.20 per US dollar, its lowest level since December 14. Thai Prime Minister Srettha Thavisin, also the finance minister, voiced concerns about the economy's low inflation, previously urging the central bank to consider interest rate cuts despite affirming no authority in monetary policy decisions.

Forthcoming US inflation data

Across Asian equities, Singapore and Manila stocks experienced declines of up to 1.2 per cent and 1.1 per cent, respectively. This market sentiment was tied to anticipation surrounding the forthcoming US inflation data, slated for release on Thursday, which will guide assessments on potential Federal Reserve interest rate cuts throughout 2024.

Christopher Wong, a currency strategist at OCBC, indicated that a softer inflation reading might encourage a return to the "goldilocks trade," impacting the US dollar and US Treasury yields. However, expectations of higher inflation could prompt the unwinding of aggressive Fed rate-cut speculation.

In South Korea, the won declined by 0.5 per cent to its lowest point since the first week of December, while Seoul's stocks faced a sixth consecutive session of decline, dropping by as much as 0.8 per cent to reach their lowest level since December 14, 2023. Despite concerns around financial stability, the Bank of Korea is expected to maintain its key policy rate in the upcoming announcement on Thursday, reflecting a preference for a neutral stance rather than an immediate rate cut, according to a Reuters poll.

(with Reuters inputs)