Emerging markets: Indonesian rupiah lead losses as regional equities comes under pressure ahead of US inflation

JAKARTA Dec 10 (Reuters): The South Korean won and Indonesian rupiah were the top losers among mostly muted Asian currencies on Friday, as the dollar firmed ahead of US inflation data which could settle the course of interest rates.

The won depreciated 0.4% to mark its worst intraday drop in a month, but was on track to firm modestly over the week on gains logged earlier.

The rupiah lost 0.2% on Friday, however, was eyeing its best week in four.

The US dollar index inched higher to 96.26, and was chasing its seventh straight weekly rise ahead of the inflation data, where any upside surprise will likely be interpreted as a case for a faster Federal Reserve taper and sooner interest rate hikes.

“Fed officials have hinted strongly that they could expedite the pace of asset purchases and possibly bring forward the timing of ‘lift-off’ in terms of rate hikes,” analysts at Mizuho Bank said in a note.

Emerging currencies, which gained against the US dollar earlier in the week, could come under pressure as the market focuses on the inflation data and news around the Omicron coronavirus variant, the analysts added.

Most Asian currencies, with the exception of the Chinese yuan and Singapore dollar, have held strong against the greenback in the past few weeks against the backdrop of new developments regarding Covid-19, analysts at Australian bank Westpac said.

“This resilience is impressive given the shift in sentiment brought on by Delta and Omicron, providing us with strong conviction in the growth opportunities ahead for Asia, and that a structural uptrend for Asia FX will be seen, at least to end-2023,” they added.

Among regional currencies, the Malaysian ringgit and Singapore dollar weakened about 0.2% each, while China’s yuan appreciated 0.2% after slipping sharply off its 3-1/2-year high to 6.37 per dollar in the previous session.

Westpac analysts expect the yuan to hold near its current level until June 2022, and then appreciate to 6.25 per dollar by end of next year and 6.10 by end of 2023.

In equities markets, Indonesia, the Philippines, South Korea’s KOSPI declined between 0.3% and 0.7% on Friday.

Singapore shares lost 0.4% as the city-state reported its first locally transmitted Omicron case. Markets in Thailand were closed for a holiday. – Reuters

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