Emerging Asian markets witnessed a wave of optimism on Friday, with regional equities rallying in response to expectations of a Federal Reserve rate cut following a significant decline in U.S. retail sales. While Asian currencies maintained stability, they were poised for varied weekly performances.

In Singapore, stocks soared by as much as 1.7 per cent, marking their highest level in over a month, mirroring the upward trend witnessed on Wall Street. Malaysian equities followed suit, advancing up to 0.4 per cent to reach levels unseen since June 2022.

Indonesian stocks surged by 0.9 per cent, signalling their best week since mid-November, fuelled by unofficial reports indicating Defence Minister Prabowo Subianto's apparent victory in the country's closely watched presidential election. Investors remained buoyant, optimistic about the continuation of President Joko Widodo's economic policies in Southeast Asia's largest economy.

South Korean and Indian stocks also experienced notable gains of 1.3 per cent and 0.7 per cent, respectively, while Taiwanese equities, though slightly lower, remained near a record high achieved just a day prior.

The latest U.S. retail sales data, revealing the steepest drop in ten months, alleviated concerns surrounding inflation, thereby increasing the likelihood of a Federal Reserve rate cut in June, as indicated by the CME FedWatch tool, which currently pegs the probability at 80 per cent.

Despite the dollar's overnight decline, early Asia trade saw it stabilize, poised for its fifth consecutive weekly gain. Analysts at DBS emphasized caution regarding overinterpretation of individual data points, favouring a perspective that anticipates a soft landing for the economy.

Asian currencies traded within a narrow range, with the Singapore dollar on course for its sixth consecutive weekly decline. The Malaysian ringgit and the Thai baht were set for a second consecutive weekly drop, while the Philippine peso remained relatively stable despite early stock market gains giving way to a slight decline.

The Bangko Sentral ng Pilipinas (BSP) opted to maintain its benchmark interest rate unchanged, citing receded risks to inflation but continued caution due to persisting upside risks. Analysts anticipate the BSP to remain vigilant regarding the Fed's policy trajectory and its potential impact on domestic currency dynamics.

Looking ahead, investors will closely monitor policy rate decisions from the Bank of Korea and Bank Indonesia, alongside inflation data from Malaysia and Singapore, and gross domestic product (GDP) figures from Thailand. Additionally, anticipation surrounds the reopening of China's markets following the Lunar New Year holidays, with investors eager to discern potential market interventions following the appointment of a new markets regulator prior to the break.

As markets navigate through evolving economic indicators and policy developments, cautious optimism appears to prevail across the Asian landscape, with investors poised to react to forthcoming data releases and central bank decisions in the week ahead.

(With Reuters inputs)