Indonesia’s rupiah skids to lowest in more than 2 years ahead of rate decision – Markets

The Indonesian rupiah fell to its lowest level in two-and-a-half years on Thursday and yields rose ahead of a widely expected half-point rate hike by the central bank later in the day, while other Asian currencies weakened on headwinds to global growth.

Sentiment in Asian markets was dampened by rising Treasury yields on expectations of a continued dovish stance from the US Federal Reserve, which also pushed the US dollar higher and put pressure on EM currencies.

The US dollar index edged up to 113.04, extending an overnight gain of nearly 1% and also hitting a 32-year high against the yen. The benchmark Treasury yield hit a 14-year high on a sharp sell-off in government bonds.

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“An exceptional US dollar strength is an endogenous risk that amplifies global policy headwinds and increases risks of a global recession and financial shocks,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank.

Dollar strength and rising Treasury yields put pressure on one of the best-yielding bonds in emerging Asia: Indonesia’s 10-year yield soared to a four-month high of 7.534%.

“Market participants went short in anticipation of Bank Indonesia’s interest rate decision today,” analysts at Maybank said.

“Furthermore, there has been added pressure for global investors to shift their investment positioning from emerging markets to developed markets after witnessing the recent appreciation of the US dollar against the rupiah and more attractive US Treasury yields,” they added .

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According to a Reuters poll, Bank Indonesia is expected to hike its benchmark interest rate by 50 basis points (bps), which will be the second half-point hike in a row as it aims to catch up with its peers and tame runaway inflation .

The rupiah weakened as much as 0.6% ahead of the interest rate decision, trading at its lowest level since April 2020. Jakarta shares rose as much as 1.5%, marking their fourth consecutive gaining session.

Asian currencies firm, stocks rise as risk sentiment improves

Elsewhere in Asian markets, fears of an impending recession weighed on risk appetite.

The Chinese yuan fell 0.1%, with Beijing keeping interest rates unchanged for the second straight month.

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The Malaysian ringgit fell 0.2%, while the Indian rupee fell 0.1% and the South Korean won 0.5%.

Reactions to global developments were mixed for Asian equities. South Korean equities and Taiwanese equities fell 1.3% and 1.7%, respectively, while Malaysian equities rose 0.8% and Philippine equities rose 0.3%.

Stocks in India fell as much as 0.4%.

Highlights:

** Japan’s imports are rising on the back of the weaker yen, fueling fears of inflation

** Chinese capital steps up COVID measures as cases quadruple

** India’s economic growth prospects are flat and stuck in lower gear

Source

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