Emerging Asian currencies, stocks inch higher ahead of US inflation data

Most emerging Asian currencies and stocks saw modest gains, with the Thai baht and South Korean won leading the way. This positive momentum comes as market participants eagerly await US inflation data, seeking insights into the Federal Reserve's monetary policy stance for the year.

The Thai baht rebounded by 0.5 per cent against the US dollar, recovering from a significant sell-off prompted by Prime Minister Srettha Thavisin's rate cut remarks. The currency also managed to break a five-day losing streak.

The South Korean won witnessed 0.3 per cent jump, marking its most substantial intraday gain since December 28, 2023. In Seoul, stock prices remained largely unchanged. The Bank of Korea is expected to maintain its policy rate in an upcoming meeting, aligning with the consensus that most Asian central banks will wait for further evidence of inflation deceleration before considering rate cuts later in the year.

Equities in Manila advanced by 0.8 per cent, maintaining the high reached in July-end on Monday, while Kuala Lumpur stocks added up to 0.6 per cent, reaching their highest level since November 25, 2022. Sentiment received a boost from comments by Fed officials, including Governor Michelle Bowman and Atlanta President Raphael Bostic, who indicated a less hawkish stance.

Traders are closely monitoring US inflation data for December, scheduled for later in the week, as it could provide crucial indications of the potential timing for Federal Reserve interest rate cuts. Markets currently anticipate a 62 per cent chance of a rate cut as early as March, compared to nearly 90 per cent a week ago, according to the CME FedWatch Tool.

Gary Ng, Senior Economist, Asia Pacific with Natixis, advised caution, noting that while the market has priced in a Fed rate cut in March, investors should remain wary of the possibility of a delayed move, which could pose headwinds to capital inflows in Asia.

In other developments, the Malaysian ringgit edged up by 0.2 per cent, while the Philippine peso slipped by 0.4 per cent. The Indonesian rupiah remained flat. Equities in Shanghai, Bangkok, and Singapore advanced by varying degrees.

Attention is now turning to Taiwan's presidential and parliamentary elections on January 13, with geopolitical risks over Taiwan being closely watched. The aftermath of the elections may impact the rebound of the Renminbi (RMB) and other Asian currencies. Additionally, markets are anticipating a range of data releases this week, including inflation data from India and China. Investors are navigating these factors as they assess the outlook for emerging Asian markets in the coming sessions.

(With Reuters inputs)