(Updated)

Philippine peso extends rout ahead of policy meeting, Asian currencies mixed

Philippine peso extends rout ahead of policy meeting, Asian currencies mixed
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BENGALURU (June 21): The Philippine peso bucked a broad recovery in Asian markets on Tuesday, as the country's central bank was seen raising interest rates at a slower pace than its global peers, while other regional currencies were mixed against a weaker US dollar.

A Reuters poll showed that the Philippine central bank will raise rates by a 25 basis points (bps) in June, but some surveyed economists saw a 50bps hike in the face of a depreciating peso, which is down nearly 6% this year.

The peso was set for its fifth straight session of losses on Tuesday, dipping 0.4% to hit its lowest since October 2018.

In Indonesia, the rupiah snapped a five-day losing run to rise 0.3%, leading gains in the region.

Another Reuters poll showed that Bank Indonesia, which has maintained a relatively dovish stance to rate hikes, will leave its key rate unchanged in June, with only a few economists betting on a 25bps rate rise to stem imported inflation.

Broadly though, a tepid US dollar provided emerging currencies with some breathing space, with Malaysian ringgit up 0.1% and Singapore's dollar 0.2% higher.

South Korea's won reversed course to dip 0.1%.

Oil prices rose 1%, pressuring the energy-sensitive Thai baht and Indian rupee.

The baht dropped to its lowest levels since January 2017, down 0.3%, while the rupee slipped 0.1%.

"We expect INR, THB, and PHP to be more vulnerable given the deficit in their basic balance positions," analysts at TD Securities said.

Meanwhile, an index tracking Asian emerging markets (EMs) inched higher from a five-week low. The MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.3% and was set for its best day in around two weeks.

"Markets are taking a pause to re-assess the Fed's outlook and forward growth risks. Some market participants are likely also adding back positions after last week's broad selloff," said Duncan Keng Han Tan, a rates strategist at DBS Bank.

EMs have been roiled by a selloff in the past week, haunted by global recession fears after an outsized rate hike from the US Federal Reserve fuelled more urgency to tighten monetary policy in the region.

Central banks in Australia and South Korea, too, stepped up their hawkish response and flagged increased tightening ahead to tame rising inflation.

However, TD Securities' analysts said EM central banks do not have to jump to the Fed's tune as quickly or to the same extent as they previously did.

"USD borrowing costs remain relatively low for many EMs, reducing some of the urgency to raise rates."

On Tuesday, equities in Malaysia, Thailand, Singapore and Indonesia rose between 0.7%-0.8%, while those in South Korea and India were up nearly 1%.

The Philippine index was the top underperformer, down up to 1.2% and touching its lowest since May 2021.

Looking ahead, investors' focus will be on central bank meetings in Thailand and Indonesia later in the week, as well as Federal Reserve Chair Jerome Powell's semi-annual monetary policy testimony before the Senate Banking Committee.

Highlights:

  • Thailand's cabinet agreed to support measures and plans to seek a contribution from refineries to boost the country's depleted oil fund amid surging energy prices, the prime minister said
  • Malaysian palm oil futures slid on Tuesday to their lowest since Jan 3, as top palm oil exporter Indonesia boosted exports amid worries around demand in key markets
  • Indonesian 10-year benchmark yields are up 3.2 basis points at 7.531%