MOST Asian currencies inched lower on Wednesday, while equities were largely mixed, as traders remained cautious ahead of a key U.S. inflation reading due Thursday that could give clues on the timing of rate cuts by the Federal Reserve.
The Philippine peso was down 0.5% and the Indonesian rupiah weakened 0.3%, both on track for their fourth consecutive decline.
The Malaysian ringgit was largely unchanged at 4.761 per U.S. dollar after gaining 0.3% in the previous session. The currency briefly touched its lowest since January 1998 last week.
The response from Malaysia’s central bank echoed Prime Minister Anwar Ibrahim’s sentiment that the currency is undervalued and should be trading higher on account of positive fundamentals and prospects for the economy.
“The combination of weak domestic fundamentals, lack of USD sellers, lower FDI inflows, persistent portfolio outflows and the absence of central bank intervention drove MYR weakness,” analysts at Goldman Sachs wrote.
They think there is scope for the ringgit to weaken further as the Bank Negara Malaysia will not intervene heavily in the forex markets given its moderate level of FX reserves.
Meanwhile, stocks in the region were mixed ahead of U.S. core personal consumption expenditures (PCE) price index data – the Fed’s preferred measure of inflation – scheduled for release on Thursday.
The PCE is expected to have risen 0.3% on a monthly basis in January, according to a Reuters poll.
“If the PCE is lower than the market is expecting then we got a situation where Fed cuts come back into play and U.S. bond yields come off,” Alvin Tan, head of Asia FX strategy at RBC Capital Markets, said.
Markets currently anticipate June to be the starting point of the Fed’s easing cycle compared with March at the start of the year.
In Asia, Singapore shares were down as much as 0.7%, on track for their fourth straight fall, while Malaysian equities lost 0.6%.
South Korean shares gained as much as 1.2% as the country’s market watchdog warned of possible penalties for firms failing to boost shareholder returns in the long run, in an effort to reduce the “Korea discount” on stock prices.
Amongst local data, the focus is on a February inflation report from Indonesia and Thailand, both due on Friday.
Investors are also looking out for any signals on policy easing by regional central banks, with recent inflation prints from Southeast Asian economies showing downward trend.
Markets in Taiwan were closed on Wednesday for a public holiday.
HIGHLIGHTS:
** India’s fourth quarter GDP due on Thursday and China’s Feb PMI data due on Friday
** Thai c.bank to allow asset management firms to tackle household debt
** Hong Kong scraps property tightening measures to aid economic recovery – Reuters