Most Asian currencies, stocks rise ahead of Fed decision
Bank of Japan raises short-term rates
Thai baht, South Korea won lead gains
Inflation data awaited from S.Korea, Indonesia
Updates at 0645 GMT
By Archishma Iyer
July 31 (Reuters) -Emerging Asian currencies and stocks rose on Wednesday, with investors awaiting the US FederalReserve's policy decision later in the day, while the yen was choppy after the Bank of Japanraised rates for the second time since 2007.
The South Korean won KRW=KFTC and the Thai baht THB=TH gained themost among currencies, rising 0.6% and 0.5%, respectively.
Investors now awaitthe Fed's decision, with markets expecting the central bankto stay pat on interest rates. However, any commentaryon a possible ratecut in September will keenly eyed.
Market participants have largely priced in a September rate cut, with more than 87% odds of a 25 basis-point reduction, according to the CME FedWatch tool.
The Bank of Japan raised its short-term interest rate target to 0.25% and unveiled a detailed quantitative tightening plan on Wednesday, pushing theyen to its highest in a week, before the currency pared all of its gains.
"The elephant in the room is JPY, which has been highly volatile. The sharp recent appreciation suggests that many currency traders made correct bets on the BoJ’s rate move today," Duncan Wrigley, Chief China+ economist at Pantheon Macroeconomics, said in a note.
Other Asian currencies such as the Singapore dollar SGD=, the Philippines peso PHP= and the Malaysian ringgit MYR= traded flat to 0.3% higher.
The Fed cutting rates could pave the way for Asian central banks to start easing their own policy stances, even though thismay not be as beneficial for emerging Asia, saidJonathan Koh, an economist and FX analyst atStandard Chartered.
"I think some (Asian) central banks could cut interest rates following the Fed, so in a way the interest rate differential may not actually narrow in favour of Asian currencies but usually when the Fed cuts, it may lead to a risk-on sentiment for EM Asia currencies," Koh said.
A wider interest rate differential is usually beneficial for riskier emerging market assets as investors will seek higher returns, boosting capital inflows.
Investors alsoawait inflation data from Indonesia and South Korea this week, to gauge the stance of their respective central banks oninterest rates.
Both central banks had held ratesearlier in the month, citing more economic evidence was needed to pivot to rate cuts.
Most emerging Asian equities rose, with Chinese stocks .SSEC advancing about 1.9%, as investors cheered a Politburo meeting that emphasised the need for a boost in consumption.
Bourses in Thailand .SETI, Philippines .PSI, Malaysia .KLSE and Indonesia .JKSE traded higher between 0.1%and 0.8%.
HIGHLIGHTS:
** Reserve Bank of India to hold rates in August, first cut in Q4
** Philippines central banksees July inflation rate at 4.0% to 4.8%
** China's July factory activity shrinks, services grow more slowly
Asian stocks and currencies at 0645 GMT | ||||||
COUNTRY | FX RIC | FX DAILY % | FX YTD % | INDEX | STOCKS DAILY % | STOCKS YTD % |
Japan | JPY= | +0.00 | -7.66 | .N225 | 1.49 | 16.84 |
China | CNY=CFXS | +0.20 | -1.84 | .SSEC | 1.89 | -1.38 |
India | INR=IN | -0.01 | -0.63 | .NSEI | 0.30 | 14.73 |
Indonesia | IDR= | +0.06 | -5.47 | .JKSE | 0.07 | -0.36 |
Malaysia | MYR= | +0.33 | -0.33 | .KLSE | 0.48 | 11.34 |
Philippines | PHP= | +0.25 | -5.21 | .PSI | 0.23 | 2.66 |
S.Korea | KRW=KFTC | +0.59 | -6.43 | .KS11 | 1.19 | 4.35 |
Singapore | SGD= | +0.03 | -1.69 | .STI | 0.34 | 6.58 |
Taiwan | TWD=TP | -0.15 | -6.57 | .TWII | -0.11 | 23.81 |
Thailand | THB=TH | +0.49 | -4.25 | .SETI | 0.77 | -6.90 |
Reporting by Archishma Iyer in Bengaluru; Editing by Subhranshu Sahu and Sonia Cheema
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