The South Korean won and Thailand’s baht were the top losers on Friday, as Asian emerging currencies were pressured by the Federal Reserve’s resolve to further raise rates to contain inflation that buoyed the dollar.
China’s yuan, one of the most traded currencies in the region, fell as much as 0.4% to a more than three-month low, while the Thai baht weakened half a percent to hover near a 10-day low.
The US dollar index, which measures the greenback against a basket of major peers, was up at 107.63 in early Asia trading hours, and was on track to end the week about 2% stronger lifted by the Fed’s continued tightening stance.
The South Korean won slumped to an over 13-year low, falling 0.6% and marking its fourth straight session of losses, while the Indonesian rupiah slipped 0.3% to its lowest level in nine days.
Bank Indonesia (BI), one of the few laggards in the region yet to begin its monetary policy tightening, is expected to stand pat on its benchmark rate yet again in a meeting next week considering the rupiah’s recent appreciation and as inflation remains within target.
Analysts at Barclays and Australia and New Zealand Banking Group (ANZ) expect BI to hold its policy rate at a record low as the rupiah has recovered in recent weeks.
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It has firmed more than 1% since July 21 when it hit a more than two-year low.
“The strengthening of the rupiah over the past month and the absence of a US Fed policy meeting in August both reduce the impetus for BI to act in the very near term, in our view,” ANZ analysts said in a note.
However, a rate hike is expected at BI’s September meeting. With second-quarter economic growth accelerating, data suggesting economic activity remains robust and upside risks to inflation rising, BI’s rate lift-off is expected to begin in September, the ANZ analysts added.
Meanwhile, more policy easing is expected in China, with ANZ and Barclays analysts expecting a 10 basis point cut in the loan prime rate (LPR) next week.
A Reuters survey predicts a 10 bp cut to the mortgage reference. The loan prime rate (LPR), which banks normally charge their best clients, is set by 18 designated commercial banks who submit proposed rates to the People’s Bank of China (PBOC).
Among other regional currencies, the Malaysian ringgit, Philippine peso and Indian rupee were largely unchanged, while Japan’s yen declined 0.3% as inflation accelerated at its fastest pace in over seven years.
Equities were largely mixed, with shares in Singapore down as much as 0.8%, while those in Thailand and South Korea were down about 0.2%, respectively.
Philippine shares advanced 0.5%, a day after the central bank hiked its benchmark rate by 50 basis points.
Highlights:
** Indonesian 10-year benchmark yields tick higher to 7.087%
** China set to lower lending benchmarks to revive wobbly economy
** India hikes taxes on fuel exports, slashes windfall tax on local crude
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