BENGALURU: Asian currencies were subdued against the US dollar on Friday, with the Indonesian rupiah touching a fresh four-year low, as the Federal Reserve’s patient stance towards interest rates adds pressure as yield differentials widen.
The Indonesian rupiah slipped 0.3% to 16,475.00, the lowest since early April 2020, a day after Bank Indonesia (BI) kept its interest rate unchanged but said it will fine-tune other tools to stabilise the weakening currency.
The rupiah has lost more than 6% so far this year, and is among the worst performing currencies in the region.
“Looking ahead, BI will intervene actively in the FX market, optimise monetary instruments, and maintain strong yields to attract capital inflows,” Karinska Priyatno, a fixed income analyst at Mirae Asset Securities wrote.
“With corporate USD demand peaking in the second quarter and subsiding in third quarter, rupiah pressure is expected to ease in the near future.”
Meanwhile, most other Asian currencies have declined sharply so far this year. The Philippine peso, Thai baht, and Taiwan dollar have each lost more than 5%, while the Malaysian ringgit and Singapore dollar are down over 2%.
“Widening yield differentials between US and Asia is one of the major drivers for Asian FX volatility and weakness. If this persists, we may continue to see further weakness for most Asian FX,” Christopher Wong, an FX strategist at OCBC, said.
In the Philippines, the peso appreciated slightly on Friday while equities declined 1.6% - the lowest since mid-December - ahead of the central bank’s monetary policy meeting next week.
“Dovish BSP (Bangko Sentral ng Pilipinas) guidance and divergence with US and some of the monetary policies in the region makes PHP more vulnerable among Asian currencies excluding Japan,” Wong said.
“For the next meeting, our house view still looks for BSP to stay on hold.”
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