Asian financial markets are set for a big day on Friday, with attention focused on monetary policy decisions in South Korea and Singapore, as well as key economic data from China and India. Investors are looking to bounce back from Thursday’s US inflation-related volatility and end the week on a positive note.
Currency markets were particularly tense, with the Japanese yen continuing to hover at a 34-year high against the dollar, breaking above 153.00 yen. Although there was no immediate intervention from Japan to support the yen, traders remained cautious about maintaining long positions in the dollar/yen pair as the weekend approached.
The yen’s persistent weakness, including a 31-year low against the Chinese yuan, is raising concerns across Asia. The potential for a wave of ‘beggar-thy-neighbour’ currency devaluations on the continent, while not official policy, could be a welcome or even encouraged outcome in some capitals seeking to gain a competitive edge in world trade.
Such a weak exchange rate, however, could hamper central banks’ efforts to fight inflation. In China’s case, higher inflation would be better, but a weaker currency risks triggering capital outflows from Chinese assets. The offshore yuan suffered its biggest drop in three weeks on Thursday, hitting a five-month low against the dollar despite the central bank’s efforts to shore it up.
On the equity front, Asian stocks are on track for their best week in five years if they follow Wall Street’s lead, where the Nasdaq rose 1.7% on Thursday. A gain of 1% on Friday would mark the MSCI Asia Pacific Index’s best week of the year and push it to a fresh 14-month high.
The resilience is remarkable given the challenges facing China’s economy, with the blue-chip CSI 300 Index posting a six-day losing streak. Another decline on Friday would represent the index’s longest losing streak since the pandemic began in March 2020. China’s property woes, rising debt levels and deflation continue to weigh on economic activity.
Beijing will release March trade data on Friday, with expectations of a contraction in exports likely to dampen some of the optimism seen earlier this year. In South Korea, the central bank is expected to keep its key policy rate at 3.50% at its tenth straight meeting on Friday, with a mild rate-cutting cycle expected to begin in the next quarter, according to a Reuters poll. Meanwhile, data from India is forecast to show inflation eased to a five-month low of 4.91% in March, still above the Reserve Bank of India’s medium-term target of 4%. These developments are likely to provide further direction for Asian markets as the week ends, with investors closely watching the results of these key economic events.
Source: Investing
