Focus Returns To Global Policy Tightening, Subduing Asian Currencies And Equities

Asian currencies and equities struggled for direction on Thursday (March 30) as investors turned their attention back towards the US and global monetary policy tightening campaigns after the crisis in the global financial sector eased.

The Thai baht pared some of its early losses and depreciated 0.2% after rising for two straight days. The currency is on track for a monthly gain of over 2.5% in March.

The poll-bound country also saw its customs-based exports contract for a fifth straight month, with shipments expected to drop further in the first half of the year before improving in the second half, the Commerce Ministry said.

The Bank of Thailand (BOT) also hiked interest rates by 25 basis points (bps) on Wednesday, in line with expectations, as the central bank looks to tackle soaring inflation.

“We maintain their view for a final 25 bps hike in May to bring the terminal policy rate to 2%. BOT is expected to stand pat in 2H 2023 as inflation returns to their target range, which could happen as early as 2Q 2023,” said analysts at Maybank.

Meanwhile, most other Asian currencies remained subdued with Malaysian ringgit and Philippine peso falling 0.1%, while South Korean won appreciated 0.3%. The Singapore dollar was unmoved.

Currency markets lacked firm direction this week, partly due to quarter/month-end flows and ahead of US economic data, said analysts at Overseas-Chinese Banking Corporation.

Traders are looking out for the US February personal consumption expenditures (PCE) data, the Fed’s preferred inflation gauge, to further assess the outlook for interest rates and the US dollar.

Additionally, the Chinese yuan inched higher, while stocks in Shanghai advanced 0.5% as investors await China’s manufacturing data for March due on Friday to gauge the health of the world’s second-largest economy.

“The rest of the world has strong links to China’s goods consumption, but limited exposure to its services demand. That means traditional beneficiaries such as Europe and North Asia will see less positive spillover from China’s growth than historical trends would indicate,” said analysts at Barclays in a note.

Elsewhere, Malaysia’s central bank flagged prospects for further hikes to its benchmark rate as inflation levels are expected to moderate but still remain elevated throughout the year.

The Malaysian ringgit fell 0.1%, but was tracking a 1.4% gain for the month of March. Equities markets in the region were down modestly with stocks in Singapore, Malaysia, and Thailand fell between 0.2% and 0.5%.

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