The Indonesian rupiah led a broader advance across Asian currencies on Friday as the US dollar retreated, with Treasury yields tumbling after lacklustre US economic data reaffirmed expectations for more Federal Reserve policy easing.
The rupiah strengthened as much as 0.7 per cent to 16,395 per dollar, staging a notable recovery despite being the region’s worst performer year-to-date with losses exceeding 2 per cent.
“The rupiah is playing catch up to the recovery of other Asian currencies, after an extended bout of underperformance, riding also on better sentiments in the onshore stock market,” said Radhika Rao, senior economist at DBS Bank.
With inflation still within the target range, policymakers have room to reinforce their pro-growth stance with an interest rate cut this month, Rao said. Bank Indonesia will deliver its policy decision on Wednesday, and ING analysts anticipate rates will remain unchanged.
Other regional currencies also advanced, with the Malaysian ringgit and Philippine peso each gaining 0.3 per cent, while the Thai baht and Singapore dollar both added 0.2 per cent. The South Korean won rose 0.4 per cent, advancing for a fourth consecutive session in its third straight week of gains.
The currency broke through the psychologically important 1,400 level on Wednesday with a 1.8 per cent surge following talks between South Korea and the US on May 5. The sharp movement mirrors the Taiwanese dollar’s early-May rally, when it surged 6 per cent over two days.
On Friday, it edged up 0.2 per cent, heading for a seventh consecutive weekly gain. This week had kicked off optimistically after the US-China trade truce, which initially boosted the dollar, but momentum quickly faded, leaving most currencies trading sideways.
By 0614 GMT, the US dollar index was flat at 100.56 points, though it remained up 0.3 per cent for the week. The greenback struggled to recover after Thursday’s slide following unexpected US producer price declines in April, which followed earlier benign consumer price data, strengthening expectations for at least two Fed rate cuts this year.
The MSCI emerging market currency index held steady on Friday but was poised for its fifth consecutive weekly gain, up over 0.3 per cent. India’s rupee bucked the regional trend, dipping 0.1 per cent after earlier gains.
Bankers attributed the weakness to persistent dollar demand for immediate payments from a large state-run bank and two major foreign banks, despite positive sentiment from the India-Pakistan truce.
Regional equity markets cooled in the final days of the week after earlier gains on easing trade tensions. Jakarta and Bangkok shares each rose over 0.3 per cent, while Seoul and Taipei added 0.3 per cent. Manila stocks fell 0.9 per cent and Singapore declined 0.2 per cent.
The MSCI emerging Asian equities gauge eased 0.3 per cent on Friday but has gained over 3 per cent this week, on track for its fifth straight weekly advance.
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