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Asian assets cautious ahead of US CPI data and Fed meeting

June 11, 2024

Key points:

  • Indonesian rupiah at lowest level in 4 years
  • Taiwan stocks jump to a record high
  • US CPI data and Fed policy meeting due on Wednesday

Emerging Asian markets were finely balanced on Tuesday as traders awaited the release of U.S. inflation data and the Federal Reserve’s policy meeting, which are set to influence future rate expectations.

The Fed’s next policy decision, expected on Wednesday, is anticipated to result in policy rates remaining steady for the seventh consecutive meeting.

U.S. inflation figures for May, due before the Fed policy decision, are forecasted to rise by a slim 0.1%, with core inflation up by 0.3%.

Regional currencies under pressure; Indonesia’s rupiah hits 2020 low

The chart shows the USD/IDR currency pair (symbol: USDIDR) on a 1-hour timeframe with no significant trend change (0.00%). It features an open price of 16,306.9, a close price of 16,306.5, a high of 16,316.7, and a low of 16,293.0. The chart includes technical indicators such as moving averages (MA) and the MACD (26,16,9). In Asia, market attention was focused on Indonesia's rupiah, which weakened by 0.1% on Tuesday, trading at its lowest level since April 2020. Further declines in the currency are expected to prompt additional intervention from Bank Indonesia, which acted on Monday to prevent extreme volatility in one of the region's worst-performing currencies this year.

Picture: Indonesia’s rupiah weakens as seen on the VT Markets app.

In Asia, market attention was focused on Indonesia’s rupiah, which weakened by 0.1% on Tuesday, trading at its lowest level since April 2020.

Further declines in the currency are expected to prompt additional intervention from Bank Indonesia, which acted on Monday to prevent extreme volatility in one of the region’s worst-performing currencies this year. 

The chart shows the USD/TWD currency pair (symbol: USDTWD) on a 1-hour timeframe with a minor downtrend (-0.02%). It features an open price of 32.326, a close price of 32.318, a high of 32.382, and a low of 32.311. The chart includes technical indicators such as moving averages (MA) and the MACD (26,16,9). Taiwan's dollar fell as much as 0.5% to 32.411 per U.S. dollar, set for its biggest intraday loss in nearly eight weeks. South Korea's won, another underperformer this year, also dipped 0.1%, while most other regional currencies traded flat. In China, the yuan fell to a near seven-month low against the U.S. dollar, as investors returned from a long weekend, reacting to the broad strength of the greenback in overseas markets.

Picture: Taiwan dollar trading at 32.318 as seen on the VT Markets app.

Taiwan’s dollar fell as much as 0.5% to 32.411 per U.S. dollar, set for its biggest intraday loss in nearly eight weeks. South Korea’s won, another underperformer this year, also dipped 0.1%, while most other regional currencies traded flat.

In China, the yuan fell to a near seven-month low against the U.S. dollar, as investors returned from a long weekend, reacting to the broad strength of the greenback in overseas markets.

You might be interested: China’s yuan dips as PBOC sets new midpoint

Asian equities mixed amidst U.S. policy meeting uncertainty

Asian equities were mixed on Tuesday, with risk sentiment dampened by the upcoming U.S. policy meeting. Taiwanese stocks hit a record high in early morning trade but pared back some gains later in the day, with the index last trading flat at 21,866.03 points.

Stocks in China and Singapore fell by 1.1% and 0.3%, respectively, while those in South Korea rose by 0.4%.

Also read: Bank of Korea to hold rates, first cut expected in Q4 

Emerging markets react to political and economic news

In other emerging markets, the Mexican peso fell nearly 2% to 18.55 per U.S. dollar in international trading, as President-elect Claudia Sheinbaum pledged to encourage discussions on proposed constitutional reforms, including a judicial overhaul.

Malaysia’s April industrial production rose by 6.1%, the fastest increase in 19 months, while the Philippines posted a $4.76 billion trade deficit in April, the widest gap in six months. Additionally, the Bank of Japan may drop clues on a bond tapering plan next week, according to sources.

The cautious mood reflects the uncertainty surrounding the Fed’s policy direction and the impact of U.S. inflation data. Should the Fed signal fewer rate cuts or maintain a more hawkish stance, the U.S. dollar could strengthen further, putting additional pressure on Asian currencies.

Conversely, if inflation data comes in lower than expected, it might ease some pressure, potentially leading to a relief rally for risk proxies, including Asian FX.

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