Asian currencies subdued as markets await central bank meetings

Emerging market update: Most Asian currencies experienced a cautious start to the week on Monday, with traders preparing for a series of central bank meetings amidst a backdrop of uncertainty following a robust jobs report from the United States, which tempered expectations of an interest rate cut in June.

The closely monitored employment report released late on Friday revealed that US job growth exceeded market forecasts, dampening speculation that the Federal Reserve would initiate rate cuts in the near term.

The US Dollar index remained firm at 104.33 as of 0720 GMT, with traders now pricing in a reduced probability of a rate cut in June, down to 48.1 per cent from around 60 per cent the previous week, according to the CME FedWatch tool.

Vishnu Varathan, Mizuho Bank's chief economist for Asia ex-Japan, noted, "In particular, EM currencies are prone to a double whammy of a strong USD and high UST yields."

Investor attention is focused on central bank meetings scheduled for the week ahead, as well as inflation data releases, particularly from the United States. The outcome and tone of these meetings, beginning with the Philippine central bank on Monday, are expected to shape the trajectory of interest rates.

The Philippine peso remained unchanged after the central bank opted to maintain its key policy rate at 6.5 per cent for the fourth consecutive meeting. Concurrently, stocks recouped some early losses to trade marginally lower.

The central bank of the Philippines has raised rates by 450 basis points since May 2022, including an off-cycle hike in October.

Central bank meetings in the region this week also include Thailand, Singapore, and South Korea. In a separate development, Thailand's Prime Minister advocated for a quarter-point interest rate cut in the upcoming April 10 meeting, amid ongoing disagreements between the government and central bank over rate adjustments.

Last week, the Reserve Bank of India held its lending rate steady at 6.5 per cent.

Varathan added, "One consequence of this imposed macro-stability risk is that EM (Asia) central banks are considerably more constrained in the option to cut rates ahead of the Fed, especially with fluid Fed pivot pushback."

Other currencies such as the Singapore Dollar, Malaysian Ringgit, South Korean Won, and Taiwan Dollar traded flat to slightly lower.

Chinese markets resumed trading after a long weekend, with shares and the yuan experiencing declines of 0.7 per cent and marginally lower, respectively. The Chinese currency touched a 4-1/2-month low last week, prompting intervention from central bank authorities.

Most Asian equities saw gains, with shares in Kuala Lumpur, Taipei, Seoul, and Mumbai trading between 0.1 per cent to 0.7 per cent higher. However, markets in Indonesia and Thailand remained closed due to public holidays.

(With Reuters inputs.)