Asian currencies: Indonesian rupiah retreats

The Indonesian rupiah retreated from a one-week high against the dollar on Monday after annual consumer price inflation eased to its weakest in seven months and raised the chances of a 13th cut in policy rates this week.
The rupiah fell back even as the Philippine peso rose 0.75 percent and other Asian currencies furthered their rises against a dollar undermined by softer US consumer inflation data and lacklustre trading ahead of a US holiday.
The rupiah rallied in opening deals from levels around 9,020 per dollar to a high of 8,985, before paring gains. "It broke 9,000 and then people started talking of another rate cut and that being not such good news for the rupiah," said a Jakarta-based trader.
Rates in the high-yielding Indonesian market have been cut 12 times in about a year, with the one-month policy rate now at 8.5 percent. Bank Indonesia Deputy Governor Aslim Tadjuddin told reporters on Monday the central bank sees room for another rate cut.
Elsewhere, strategists were somewhat surprised by the rally in the Asians notwithstanding oil prices up near $71 a barrel and the widely held view that the US dollar will eventually find support due to its yield advantage.
A surge in investors' appetite for risk buoyed the Asians earlier in June, before dovishness on US rates leading into last week's Federal Reserve policy meeting hurt stock markets and currencies in Asia.
The peso gained 0.75 percent to hit 45.90 per dollar, edging closer to the 6-year peak of 45.58 it had struck early in June. "I am surprised the dollar is not better bid, given the fears of a dovish FOMC statement. But bearish sentiment has been driven by the IMF report over the weekend, and market scepticism that the Fed won't need to cut by year-end," said Sue Trinh, a strategist at RBC Capital Markets.
But Trinh said the rupiah and peso would remain bid as long as risk appetite was healthy. The Fed left rates on hold last Thursday and said core inflation had eased a bit, boosting the view that overnight rates would remain at 5.25 percent for some time. Yet it said its primary concern was that inflation would fail to moderate as expected, surprising several dovish market players.
Meanwhile, the International Monetary Fund said on Friday the dollar share of total central bank's reserves in the first quarter of 2007 edged down to its lowest in at least a decade, although overall dollar reserves hit a new record.
US markets are closed on July 4 for the Independence Day holiday. In Asia, economists and traders have a string of inflation data to consider this week. South Korea's consumer price data on Monday showed a pick-up in annual growth in June to 2.5 percent and stoked expectations the Bank of Korea could raise rates for the first time in 11 months when it meets next week. Inflation data from the Philippines and Taiwan are also due later in the week.