Emerging Asian currencies weakened, led by Thailand’s baht and the Indonesian rupiah, as the dollar firmed after a speech by Federal Reserve Chair Jerome Powell that offered more clues on the US monetary policy.
The rupiah eased 0.4 percent, a day after the country’s central bank left interest rates unchanged, as expected, while drawing up plans to attract foreign portfolio investments that would help stabilize the currency.
Bank Indonesia (BI) plans to issue new rupiah-denominated securities, using its holdings of government bonds as the underlying asset, Governor Perry Warjiyo said.
The rupiah has been the region’s best performing currency this year. However, it has come under pressure recently along with Indonesian bonds due to China’s economic malaise and a widening yield gap with US Treasuries, which have resulted in a deterioration of Indonesia’s external balances.
Indonesia’s current account swung into deficit for the first time in two years in the second quarter due to falling commodity prices and weak global growth, and the central bank expects the deficit will be higher next year.
“The new instrument is good to sustain short-term volatility to contain potential external balance change for Indonesia. But for the medium term, it will not solve the problem if the balance of payment pressures escalate,” said Fakhrul Fulvian, an economist at Trimegah Securities.
“What the market really needs most now is a steepening yield curve,” he said, adding that he sees rupiah volatility for the next two to three months.
Indonesian 10-year benchmark bond yields were last down 4.6 basis points at 6.528 percent .
The baht weakened 0.5 percent , but was still set for its first weekly gain in four weeks.
After months of political uncertainty following a May general election, the baht has drawn some support from the formation of a new government by the Pheu Thai-led coalition, and appointment of Srettha Thavisin as prime minister.
The baht’s weakness on Friday was partly due to data showing Thai exports shrank for a 10th consecutive month in July, and at a far bigger rate than expected. The commerce ministry said it would be difficult to meet the full-year export growth target. – Reuters
