Asian currencies: rupiah recovers

The rupiah retreated to 8,940 per dollar after briefly hitting 8,875 in early trade. It has largely recovered from a sharp sell-off earlier this month when rising global interest rates prompted investors to limit riskier bets.
The peso closed at 45.90 per dollar after hitting 45.76, which was the highest level in about two weeks. The rupiah and peso are vulnerable to the unwinding of the carry trade, in which investors borrow low-yielding currencies, typically the Japanese yen, to invest in high-yielding assets, but analysts say the risk of a reversal is limited.
The Chinese yuan hit a post-revaluation high of 7.6163 per dollar, the sixth straight session it has hit such a peak, guided by the central bank's stronger mid-point rate. The pace of yuan appreciation has quickened since the central bank widened the daily trading band against the dollar to 0.5 percent from 0.3 percent on May 18.
The government announced on Tuesday it would remove or reduce tax rebates on an additional 3,000 export categories, including metal products and textiles, to help reduce its trade surplus.
"While China wants to reduce its external surplus, source of fast domestic liquidity growth and friction with the United States and European Union, it wants to do so in such a way as to have a manageable impact on employment and social stability," ABN Amro analyst Dominique Dwor-Frecaut said in a research note. The Indonesian rupiah and Philippine peso pulled back moderately, but analysts still expect the riskier, high-yielding currencies to rise further now that worries over global interest rates have receded.
"Risk aversion has abated with US bond yields falling below the fed funds rate, and, with dollar/yen above 123, high-yield currencies and emerging Asian stocks have little to fear from an unwinding of yen carry trades," said Philip Wee, a currency strategist at DBS Bank.
The yield on benchmark 10-year US Treasuries eased further to about 5.077 percent on Wednesday after hitting a five-year peak above 5.3 percent last week. The Federal Reserve is expected to hold the federal funds rate steady at 5.25 percent at a policy meeting on June 27-28.
While the rupiah is one of the worst-performing currencies in Asia against the dollar this year, the peso has gained about 7 percent, trailing only the Indian rupee. "The peso is trading stronger with risk aversion abating. The trend still looks strong for the peso and other regionals - they are all strengthening in tandem," said a trader in Manila.
Most Asian currencies were supported by rising stock markets, with MSCI's broadest index of shares outside Japan hitting a new high. The Singapore dollar gained a quarter of a percent to 1.5340 per US dollar, hitting a two-week high as the Straits Times Index climbed to an all-time high.
The Malaysian ringgit rose a fifth of a percent to 3.430 per dollar. Malaysia releases consumer price data later in the day. It is expected to show annual inflation was 1.6 percent in May, holding near a 2-1/2-year low of 1.5 percent recorded in March and April, a level analysts say gives the central bank room to cut interest rates to stimulate the economy.