Major Asian currencies dropped against a rallying dollar with equities mixed, after economic print from the US again highlighted a resilient labor market, signaling the Federal Reserve may keep interest rates higher for longer.
The Thai baht snapped a four-day winning streak, weakening 0.3 percent, slipping from a two month-high it touched on Thursday as the economy is expected to enter further turmoil amid protests over a premiership battle in the country.
However, for the week, the baht is set to gain just over 1 percent, its third in positive territory, as economic fundamentals improve after a bleak first half.
The currency has reversed course in just three weeks, trading 1 percent higher so far this year.
“The risk of the political limbo lasting longer and especially into the endorsing of the annual budget on October 1 creates economic concerns in Thailand,” said Maybank analysts.
Meanwhile, data overnight showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week to the lowest level in two months.
“We think that a hawkish Federal Reserve may drive emerging market central banks to push out rate cuts, though we think hikes are unlikely across the regions,” said Barclays analysts, adding that they expect the US central bank to raise rates by another 25 basis points (bps) next week.
Stocks were mixed in the region, with equities in the Philippines Thailand and Malaysia adding between 0.2 percent and 1 percent. In Indonesia the benchmark lost 0.3 percent, while in Taiwan it fell 0.8 percent
The South Korean won which has climbed around 4 percent over the month, led losses for the day, sliding 1.1 percent.
The yuan was the sole gainer among Asian emerging market currencies, appreciating 0.1 percent. For the week, it is set to lose 0.4 percent, hurt by feeble economic growth in the world’s second largest economy.
Some investors expect China to announce more support measures at the end of the month as the economy revives from a dwindling property market.
“We see limited contagion from China property stress, and do not expect a policy bazooka out of the politburo, despite weaker economic activity,” said Barclays.
China’s foreign exchange regulator said it will comprehensively use policy measures to stabilize market expectations, at a time when the yuan faces renewed downside pressure.
“China would require fiscal stimulus to support domestic demand and property sector for the yuan to reverse weakening trend meaningfully ,” OCBC said in a note.
The yen dropped against the dollar after Reuters reported the Bank of Japan (BoJ) is leaning toward keeping its key yield control policy unchanged next week, ahead of a busy week of central bank meetings that includes the US and Europe.
BoJ policymakers prefer to scrutinize more data to ensure wages and inflation keep rising before changing the policy, five sources familiar with the matter said. The report added there was no consensus within the central bank and the decision could still be a close call.
With inflation having exceeded the BoJ’s target for more than a year, markets have been simmering with speculation the central bank could tweak yield curve control as early as the July 27-28 meeting.
