Asia FX gains on respite from dollar strength, equities rally


ASIAN emerging market currencies recovered some lost ground on Thursday, with the South Korean won gaining the most, as the greenback consolidated gains with investors slowly adapting to expectations of U.S. interest rates staying higher for longer.

Helping to boost emerging market currencies were comments coming out of the first trilateral finance dialogue held by the U.S., Japan and South Korea on Wednesday, with the three allies agreeing to "consult closely" on foreign exchange markets.

The won advanced over 1% and the Philippine peso rose 0.4% against the dollar, both currencies marking their biggest single day percentage gain since March 21.

The Malaysian ringgit and the Singapore dollar followed suit to gain 0.4% and 0.2%, respectively.

Emerging markets have taken a beating this week, with currencies still near multi-month lows, after global investors readjusted bets on the timing of any monetary policy easing from the Federal Reserve as strong U.S. data and statements from policymakers indicated the war against inflation is not over.

"It may not be a 1985 Plaza Accord but a G7 statement commenting on FX moves is good enough to setup a psychological resistance for USD," said Christopher Wong, currency strategist at OCBC.

The Indonesian rupiah, worst performer so far this week, has already lost more than 2% after Fed comments added to the dollar's safe-asset appeal and triggered a risk sell-off. Indonesia's high-yielding bond market has also lost appeal due to currency volatility and the wafer-thin spreads it offers over dollar markets, with market participants now pricing in the possibility that Bank Indonesia (BI) will start hiking rates.

Analysts at Barclays expect BI to hike interest rates when they meet to review policy settings on April 24 in an attempt to arrest the rupiah's decline.

"We think a hike is likely to have more value in terms of its signalling effect rather than its immediate impact on the IDR. Rate cuts will likely only start in Q1 25," Barclays analysts said in a note.

In India, the rupee traded largely flat while stocks in Mumbai were marginally up by 0.2%. The country is set to begin the world's largest general elections on Friday with nearly a billion people eligible to choose 543 members of the lower house of parliament.

Bucking the trend, Thailand's baht eased marginally by 0.2%, and stocks in Bangkok rose by 0.3%. J.P. Morgan, however, has revised down its target for SETI to 1,500 from 1,700 due to outflow pressures over the shift in Fed's rate cut bets and currency depreciation.

Thai stocks had lost over 15% in value in 2023 and are down about 3% so far this year.

Equities in Manila, Seoul and Singapore added more than 1% each.

HIGHLIGHTS:

** Indonesian 10-year benchmark yields fall 3.1 basis points to 6.946%

** BOJ's Noguchi says its short-term policy rate adjustment likely to be slow - Reuters

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