Currencies in emerging Asia markets snapped losses to inch higher on a muted US dollar on Monday as investors were chary of the US inflation data, which could set the tone for the future pace of monetary policy tightening by the Federal Reserve.
The Malaysian ringgit climbed 0.3% and snapped a three-day losing streak while the Indonesian rupiah was up 0.2%. The Indian rupee and the Singapore dollar inched higher.
Analysts expect the US headline consumer price index (CPI) to rise 0.5% in January, with the core number seen advancing 0.4%, compared with 0.3% the previous month, according to a Reuters poll. The print is due later in the day.
However, movements in the currencies may change if any significant deviation from the expected CPI print impacts the dollar index and Treasury yields, and correspondingly, the currencies in the region.
“Majority of investors could well expect an upside surprise. If so, the dollar buying could well broaden out in the short term,” said James Lord, strategist at Morgan Stanley.
“But ultimately, the combination of decent global growth and steep falls in inflation — which our economists continue to expect, including in the US — should help keep demand for risk assets high over time,” Lord added.
Central banks around the world have decided to slow down the aggressive pace of rate rises as multiple sets of data point to cooling inflation. However, the expected uptick in the upcoming US CPI data has cemented bets that the Fed will keep monetary policy tight for longer.
“Economic momentum at the end of last year and in early 2023 has been stronger than anticipated,” analysts at ANZ noted.
“We now expect the Federal Open Market Committee will extend tightening through the second quarter of 2023 and anticipate 25 basis points (bps) rate increases at the May and June FOMC meetings.”
On Thursday, the Philippine central bank is likely to deliver a second straight half-point rate rise, while the Bank Indonesia (BI) is expected to leave its interest rate unchanged, according to Reuters polls of economists.
Meanwhile, Thailand’s finance minister said the country’s economy could grow faster than forecast this year as a revival in tourism quickens, while the pace of monetary tightening to stave off inflationary pressures remained “reasonable”.
Stocks in the region also took a breather after tracking a bounce on Wall Street.
Equities in Malaysia climbed 0.5%, followed by a 0.4% rise in both Indonesia and India stocks. – Reuters
