Asian Currencies Gain as Fed Rate Hike Odds Diminish

The US payrolls report for September showed a significant slowdown, with only 29,000 jobs added, a far cry from the expected 90,000. The unemployment rate also ticked up to 4.2%, further dampening expectations for an imminent Federal Reserve rate hike. This softer-than-expected data reduced the likelihood of an October rate increase, which had been priced at 64% just a week earlier, down to 23%. The shift in Fed expectations sent ripples through global markets, particularly in Asia, where currencies had been under pressure from a strong dollar.

The impact on Asian currencies was mixed. The South Korean won led the gains, strengthening by 1.17% after the country reported record exports and a slight easing in inflation. The Japanese yen, meanwhile, saw a modest 0.13% rise, despite Japan's core inflation accelerating to a 10-month high. Other regional currencies, including the Philippine peso, Indonesian rupiah, and Thai baht, also saw modest improvements, though the gains were far from uniform.

India's rupee was an outlier, as its market was closed for a public holiday during the payrolls release. The Reserve Bank of India's upcoming policy meeting this week will be closely watched, with economists divided on whether a rate hike is imminent. The Indian currency's movement will likely depend on the central bank's guidance on inflation and US yields.

Southeast Asian currencies, which had been weakening due to rising global bond yields, saw some recovery on October 2. However, the gains were seen more as a rebound rather than fresh strength. The Chinese yuan and Singapore dollar also saw minor advances, though market closures and different policy frameworks complicated the picture. Overall, the Fed reprieve provided some relief, but the path forward for Asian currencies remains uncertain.