Asian currencies set for weekly declines as US payroll data takes centre stage

Forex update: Most Asian currencies fell on Friday and were set to end the first week of 2024 lower as a rally fuelled by an unexpectedly dovish shift from the US Federal Reserve towards the end of last year stalled.

The Malaysian Ringgit and the South Korean Won lost 0.3 per cent and 0.4 per cent, respectively, and were both on track to post their worst weekly decline since August last year. Indonesia's rupiah and Singapore's Dollar were poised to post their first weekly fall in four.

Traders have dialed back interest rate cut bets, with markets now pricing in a nearly 66 per cent chance of a cut in March, compared to an about 89 per cent probability last week, according to the CME FedWatch tool. This prompted the US Dollar to post its strongest week since July.

"For the short term, the market is just going to consolidate a little bit ahead of the (US) nonfarm payrolls to assess the data," said Christopher Wong, an FX strategist at OCBC. The US payrolls data is due later in the day.

Back in Asia, inflation in the Philippines slowed to its weakest pace in nearly two years in December, in-line with regional trends. However, full-year readings remained outside the central bank's target zone, diminishing chances of near-term rate cuts. The Bangko Sentral ng Pilipinas (BSP) maintained that policy settings would stay "sufficiently tight". The peso was set for its worst week since late-August. Stocks were at their highest level since August.

In Thailand, the headline consumer price index (CPI) dropped in December from a year earlier and was the lowest in 34 months. "We expect the headline to remain in deflation in January and lower our 2024 inflation forecast. With inflation unlikely to be a problem and enough policy space built, we think the BoT's (Bank of Thailand) focus will shift to growth," analysts at Barclays said in a note. The baht was 0.3 per cent lower on Friday and was set for its worst weekly fall since early-October.

The Taiwanese Dollar was largely unchanged ahead of the country's inflation reading later in the day, but was headed for its worst week since August.

Meanwhile, a Reuters poll found that most emerging-market currencies are set to regain their recent strength later this year as expectations of rate cuts by the Fed may keep the Dollar in check.

Equities in the region were largely mixed, with shares in Jakarta rising as much as 0.6 per cent to record high level. They were also on track for their tenth straight weekly gain. Stocks in Thailand dropped 0.3 per cent, while Malaysian shares rose 0.5 per cent to their highest level in nearly 11 months. South Korea shares were down 0.4 per cent, set to post their first weekly fall in ten.

Investors will be looking out for Bank of Korea's rate decision next week, with analysts at Barclays expecting the central bank to keep its policy rate unchanged.

(With Reuters inputs.)