The Indonesian rupiah stayed near six-month lows on Thursday, while the South Korean won snapped a three-day winning streak after both countries' central banks shocked investors by eschewing widely anticipated interest rate calls.
The rupiah slipped 0.4% to 16,385 per U.S. dollar, a level not seen since early July last year and adding to a 0.3% drop on Wednesday when Bank Indonesia (BI) unexpectedly slashed interest rates by 25 basis points.
"The surprise decision to pivot back to rate cuts in the face of FX pressures seems abrupt and incongruous with BI's prioritisation of IDR stability over the past two years," Barclays' analysts said.
They expect the rupiah to test 16,500 by the end of the quarter.
The South Korean won declined 0.1%, slipping from a one-week high, after the Bank of Korea (BOK) held interest rates, against expectations of a quarter-point cut.
The decision appears to be primarily of FX consideration, said Frances Cheung, head of FX and rates strategy at OCBC.
"Nevertheless, Governor Rhee (Chang-yong) tried to keep the market's rate-cut expectations alive and we see a 25 bps cut in February as a high possibility."
The two decisions underscore the challenges Asian central banks face as they try to spur growth and defend their currencies against a towering dollar, while preparing for the higher tariffs pledged by U.S. President-elect Donald Trump.
On the day, however, most Asian currencies found support as the dollar retreated after cooling U.S. inflation data knocked down bond yields and increased the likelihood of more than just one Federal Reserve rate cut this year.
Still, "Investors are reluctant to price more Fed funds rate cuts until the next cut materialises as uncertainty is high on various fronts, including inflation and tariffs," said Cheung.
An index of emerging market currencies edged higher, continuing its recovery from a six-month low earlier in the week. Among equities, while the won declined, stocks in Seoul rose 1.2% to a nearly one-week high.
Singaporean equities rose 0.7%, its first gain in six sessions, while stocks in the Philippines reversed earlier gains to fall 1%.
Taiwanese stocks closed 2.3%. TSMC, the world's largest contract chipmaker, ended 3.8% higher, ahead of its quarterly results.
Elsewhere, the Israeli shekel rose to a one-month high after the news of a ceasefire agreement between Israel and Hamas.
HIGHLIGHTS:
** Japan wholesale inflation steady near 4%, keeps alive BOJ rate-hike chance
** Detained South Korea's Yoon will not attend questioning, lawyer says
** Indonesia central bank says rupiah's weakness under control - Reuters
