Emerging markets - Most Asian forex edge higher with rate outlook in focus

MANILA (Reuters): Most Asian currencies started the week on a positive note, with the South Korean won and the Taiwan dollar leading gains, while investors in regional stock markets maintained a cautious stance for more cues on global rates outlook.

Public holidays in the United States and the UK led to lacklustre trading across global markets on Monday. Data on US personal consumption expenditures on Friday will be critical for investors, which will give them an idea of whether the Federal Reserve will be able to lower borrowing costs.

Most central banks in Asia have so far maintained a wait-and-watch mood, keeping the U.S central bank's moves in focus, thought it seems unlikely that the Federal Reserve will cut rates anytime soon.

Traders are pricing in 50% chance of a rate cut in September with markets anticipating 33 basis points of cuts this year.

Last week, central banks in Indonesia and South Korea kept policy rates unchanged, while the Philippines finance secretary said earlier on Monday that the central bank may cut interest rates by up to 150 basis points in the next two years.

"Assuming the U.S. may not act anytime soon, then Europe will probably act first, I think for a lot of central banks especially in Asia, capital outflows can be a problem if the yield differentials remain wide," said Gary Ng, a senior economist from Natixis.

The dollar index, which measures the strength of the greenback against six major rivals, was marginally lower at 104.69, as of 0700 GMT. "Since USD outperformance is likely to resume, the relief on EM FX may only be temporary.

Amid this flux, central banks in the region remain in a wait-and-see mode, keeping policy rates unchanged," Barclays analysts wrote. In Asia, the South Korean won and the Taiwan dollar were the top gainers for the day, rising about 0.4% and 0.3%, respectively.

Other currencies such as the Malaysian ringgit, Philippine peso , Thailand baht and the Indian rupee traded between flat and 0.2% higher. The Philippines hinted that it is closely monitoring developments in the foreign exchange market.

The Indonesian rupiah emerged as the sole outlier with a 0.5% drop. Among Asian stocks, Kuala Lumpur, Singapore and Seoul rose between 0.1% and 1.3%, while those in Manila and Jakarta lost about 1% and 0.1%, respectively.

Taipei stocks closed at a record high due to a tech rally in the US., spearheaded by chip giant Nvidia. The stock index has gained 21.6% on a year-to-date basis, emerging as the best performer in Asia Pacific.

In China, official data showed industrial profits in Asia's largest economy in the first four months of 2024 rose 4.3% from the same period last year. - Reuters

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