US Inflation Remains Soft, Tepid For Asian Currencies

(CTN News) – Despite US inflation data showing a three-year low, Asian currencies kept tight ranges on Friday, keeping alive expectations of June rate cuts.

This week, regional currencies have remained muted. Despite gains on Friday, the Philippine peso is set for a 0.2% weekly loss, while the Thai baht is set to rise 0.5%.

It was the fastest weekly gain in two months for the Malaysian inflation ringgit with a 0.1% gain.

Last week, the currency reached a 26-year low. Malaysia’s finance ministry said the ringgit is expected to appreciate this year and dismissed suggestions that monetary policy might be adjusted to prop up the currency.

Despite Malaysia’s strong fundamentals, Prime Minister Anwar Ibrahim and central bank Governor Abdul Rasheed Ghaffour view the ringgit as undervalued.

As part of the central bank’s efforts to curb excessive ringgit value movement, Amir Hamzah Azizan said the central bank encourages firms to use local currencies for export settlements to decrease reliance on dollars.

For now, Moh Siong Sim, FX strategist at Bank of Singapore, believes the interest rate differential or disadvantage will continue to hurt the ringgit.

In the meantime, US personal consumer expenditures (PCE) price index data picked up in January in line with expectations, while annual inflation fell to the lowest in three years, maintaining the prospect of a Fed rate cut by mid-year.

In Asia, shares in the Philippines rose 0.9% to their highest in a year.

Malaysian stocks fell 0.5%, while Thai stocks fell 0.5%. Rupiah gained 0.2% while stocks in Indonesia fell 0.6%.

In February, Indonesia’s inflation rate was 2.75%, above expectations, while core inflation was unchanged and below expectations.

After Bank Indonesia raised interest rates a total of 250 basis points between August 2022 and October 2023, the country’s annual inflation rate has remained within its target range since mid-2023. Bank of Singapore’s Sim said that the Bank Indonesia’s policy decision in terms of when to ease depends still on the Fed.

China’s manufacturing activity contracted for the fifth consecutive month in February, putting pressure on policymakers to take further measures to boost the economy. Stocks and the Chinese yuan were little changed.

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