Asian markets struggled for direction on Thursday in holiday-thin trade, with Malaysia’s ringgit and Indonesia’s rupiah leading losses, as investors dialled back projections for a US rate peak after data hinted at a still-tight labour market.
The ringgit eased as much as 0.4% and the rupiah lost as much as 0.3%, with both touching a 1-week low. The Philippine peso and Chinese yuan, on the other hand, advanced 0.2% and 0.3%, respectively.
The US dollar index inched lower by 0.1% by 0327 GMT and Treasury yields rebounded from early declines overnight after economic data in the US, including jobless claims, durable goods, and consumer sentiment, suggested that the economy was softening after about 20 months of policy tightening by the Federal Reserve.
Recent evidence of a slowing economy and disinflation in the US had pushed the dollar into a three-week spell of weakness, helping Southeast Asian currencies regain some lost ground.
Markets have dialled back expectations of Fed rate cuts in 2024, with futures now showing a 27% chance that it cuts its target rate at the March 2024 policy meeting, according to CME Group’s FedWatch tool.
In Asia, a Reuters poll showed Bank Indonesia (BI) was expected to leave its key policy rate unchanged at 6% when it meets later in the day, after a surprise 25 basis point rate increase on Oct. 19 aimed at nudging the rupiah higher.
“The case for rupiah stability, while still present, is arguably not as pressing as in October as recent developments have likely bought BI some breathing space,” analysts at Mizuho Bank said in a note adding that even if risks re-emerge, BI could act on Dec. 21, after the Federal Open Market Committee meeting on Dec. 12.
Separately, the Indonesian central bank is eyeing investment from foreign institutional investors through the inaugural auction of new securities in US dollars SVBI and its Islamic finance version SUVBI aimed at bringing capital inflows through non-resident purchases in the secondary market.
Tuesday marked the first such auction when BI sold $236.5 million worth of new securities, higher than the target of $200 million.
Analysts at Mizuho Bank highlight the possibility the instruments could alleviate acute selling of the rupiah; as it could provide investors access to FX-denominated tradable instruments circumventing the FX spot market.
“It is likely BI would need some time to assess the efficacy of the new tools in stabilising the IDR,” they said.
Indonesian rupiah drags weak Asian FX lower
Meanwhile, the Taiwan dollar traded largely flat after it snapped from a 7-day winning streak on Wednesday while political uncertainties over a January presidential election lingered.
Southeast Asian equities largely traded mixed, shares in Taiwan and Philippines losing over 0.2% each.
While those in Indonesia and India added 1.3% and 0.2%, respectively.
In Argentina, stocks extended the previous session’s rally following the weekend presidential election victory of Javier Milei.