BENGALURU- Emerging Asian currencies edged lower on Friday, while stocks largely flitted in and out of negative territory, as hawkish comments from Federal Reserve officials clouded the timeline for potential US rate cuts.
A market rally sparked by softer US inflation fizzled out as the greenback rebounded following a tight labor market data and caution from central bankers about inflation.
The US dollar index which had hit multi-month lows in the previous session, advanced 0.1 percent.
“While USD may adjust lower in light of recent softness in US data, there may also be a limit to how much lower the USD can go as the USD still retains a carry advantage, broadly,” OCBC currency strategist Christopher Wong said.
The MSCI index for emerging markets currencies edged down 0.2 percent after touching a two-month high on Thursday.
Asian EM currencies have lost much ground against the US dollar in recent years because of the Fed’s hawkish policies, weaker economic data from key Asian economies, and increased global demand for the dollar as a safe haven.
The South Korean won weakened nearly 1 percent , leading losses in the region.
Taiwan’s dollar and the Indonesian rupiah slipped 0.4 percent each.
In the Philippines, the peso fell 0.2 percent , a day after the central bank stood pat on rates and hinted that it will cut rates in August.
“Dovish meeting gives us more confidence that the BSP will start to loosen policy soon. We are sticking with our view that the central bank will cut interest rates by 25bps in August, with further loosening later in the year,” analysts at Capital Economics said in a client note.
The window of breather for Asian currencies due to the dollar’s pullback may close as they may take cues from softer China data, in particular consumer spending and very weak housing, said OCBC’s Wong.
