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 U.S. rate cuts.
A market rally sparked by softer U.S. inflation fizzled out as the greenback rebounded following a tight labour market data and caution from central bankers about inflation.
The U.S. dollar index, which had hit multi-month lows in the previous session, advanced 0.1%.
"While USD may adjust lower in light of recent softness in U.S. 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% after touching a two-month high on Thursday.
Asian EM currencies have lost much ground against the U.S. 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%, leading losses in the region.
Taiwan's dollar and the Indonesian rupiah slipped 0.4% each. In the Philippines, the peso fell 0.2%, 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.
China's industrial output rose 6.7% annually in April, beating expectations, data on Friday showed.
The country announced sweeping measures to support its crisis-hit property sector, including allowing local governments to buy unsold homes. Shares of Chinese property developers rose 3.8% after the announcement.
The yuan was last seen trading flat, recouping losses from early trade. Emerging Asian equities broadly struggled for direction due to the paring back of expectations for earlier U.S. rate cuts, with markets now fully pricing in one cut in November, with 68% chance of a cut in September.
Stocks in South Korea fell 1%, and stayed on course to snap a three-week gaining streak. Those in Singapore and Taiwan also slipped 0.3% and 0.2%, respectively.
Indonesia's benchmark index jumped 1.1%, hitting a seven-week high. The index was on course for its biggest weekly gain this year.
Malaysian shares surged to their highest since March 1, 2022. Next week's key focus will be central banks' interest rate decisions in Indonesia and South Korea. Barclays expects policy rates for both banks to remain unchanged.
First-quarter GDP figures from Thailand and Singapore due next week are likely to be weaker, according to Barclays.
HIGHLIGHTS:
** Vietnam forfeits billions of dollars in foreign aid amid anti-graft freeze, document says
** Malaysia's economy grows faster than expected, inflation risks cloud outlook
** Philippine central bank says less hawkish stance may put pressure on peso - Reuters
