The Indonesian rupiah weakened to a near two-week low on Wednesday, while most other regional currencies barely moved as investors stayed cautious ahead of Thursday's European Central Bank (ECB) meeting. Central bank easing remains a key theme for currency markets, amid persistent global growth worries, fuelling expectations the ECB will cut, as will the US Federal Reserve on July 31.
Unlike Asian shares, regional currencies did not strengthen following a Bloomberg report that US Trade Representative Robert Lighthizer would travel to Shanghai next week to meet Chinese officials. White House economic adviser Larry Kudlow on Tuesday called the meeting a good sign and said he expected Beijing to start buying US agriculture products soon.
Khoon Goh, head of research at ANZ Banking Group (Singapore), said that despite the positive news on Sino-US trade, Asian currencies "were relatively subdued as market participants are awaiting the ECB decision on Thursday, where a rate cut is highly likely." The South Korean won, Philippine peso, Singapore dollar and Tawian dollar traded in a narrow range.
The Indian rupee fell as much as 0.2%, while the Chinese yuan, the Malaysian ringgit and the Thai baht depreciated about 0.1% each. The rupiah slipped as much as 0.3 to 14,022 against the dollar, its weakest level since July 12. Goh attributed the rupiah losses to profit-taking after the currency's strong showing last week, where it gained 0.5%.
The rupiah unit has appreciated in each of the past five weeks, but has lost about 0.6% so far this one. Another factor putting the rupiah under pressure is rising oil prices rooted in lingering concerns about possible supply disruptions in the Middle East.
The currencies of major oil importers including India, Indonesia and Thailand have come under strain following Iran's seizure last week of a British tanker in the Strait of Hormuz, which has raised global prices. The Brent benchmark prices have risen about 2.5% this week, with the rupee and the baht falling as much as 0.4% and 0.5%, respectively.