The Indonesian rupiah was on track for a second straight monthly gain on Friday, while the Philippine and South Korean currencies were set to post monthly declines as investors remained cautious ahead of the US Federal Reserve’s meeting next week.
The rupiah firmed 0.4 percent on Friday, and was set to end the month about 2.3 percent higher. It is the best performing Asian currency so far this year, boosted by continued portfolio investment inflows.
“High interest rates on offer in the Indonesian government bond market are particularly attractive, especially when people are expecting global bond yields to have peaked,” said Alvin Tan, head of Asia foreign exchange strategy at RBC Capital Markets.
Tan expects the rupiah to continue strengthening in the near future but said gains would be challenged if risk aversion heightens or the Fed keeps tightening monetary policy beyond the one expected May hike.
Asian markets have largely been subdued in recent weeks, with a lack of fresh triggers keeping trading confined to narrow ranges.
“There is a huge uncertainty about what happens after the Fed’s rate hike, and it is keeping the market very cautious,” Tan suggested.
Meanwhile, data pointing to still-sticky US inflation has reinforced expectations for a 25 basis point rate hike at next week’s Fed meeting.
In Asia, Singapore’s dollar and South Korea’s won lost 0.1 percent and 0.2 percent, respectively. The won, Asia’s worst performing currency so far this year, was set for a 2.3 percent monthly decline.
“The weaker currencies like won, ringgit and Singaporean dollar in April belonged to countries that paused their monetary policy tightening on growth worries,” analysts at DBS noted.
The Philippine peso firmed 0.3 percent, but was set for its worst monthly loss since September.
The country’s central bank said annual inflation in April was expected to come in between 6.3 percent and 7.1 percent. Inflation eased for the second straight month in March, to 7.6 percent.
The central bank governor has earlier said Bangko Sentral ng Pilipinas (BSP) aims to maintain its interest rate differential with the Fed and considers it “dangerous” to cut interest rates faster than the Fed. – Reuters
