ASIAN emerging market currencies fell on Monday, led by the Indonesian rupiah, while equities were mostly positive as investors awaited U.S. initial jobless claims data.
The rupiah weakened 0.5% to hit its lowest since March 24. The country's central bank on Friday said it was ready to intervene in the FX market to defend the rupiah if needed.
Hawkish tones from the U.S. Federal Reserve and weaker economic data from China, Indonesia's largest trading partner, has increased expectations for a softening in Indonesian exports and weighed the rupiah down, said Josua Pardede, chief economist at PermataBank.
Data in China showed the country's factory gate deflation deepened in June and missed expectations, while consumer prices were unchanged as the country's post-COVID recovery faltered.
Analysts at OCBC wrote in a note that the softer CPI is reflecting still weak domestic Chinese demand and the PPI deflation underscores the strains on factories.
"Looking ahead, in year-over-year terms, we expect China's PPI deflation to persist in the coming months," analysts at Goldman Sachs wrote in a note.
Market participants are also awaiting U.S. consumer prices data for cues about the Fed's rate hike trajectory. The risk of higher global rates for longer has caused havoc in bond markets, where U.S. 10-year yields jumped 23 basis points last week.
"If the market starts to price in for the Fed to hike rates beyond July, then it's going to be positive for the dollar against the emerging market currencies, which will then put pressure on central banks," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
"To protect currency value against the U.S. Dollar they (central banks) might feel compelled to sound more hawkish than they are," Tan said.
The Chinese yuan toppled 0.1% while the Shanghai Composite Index rose 0.2%. The Thai baht and the Singapore dollar dropped 0.3% and 0.2%, respectively. The Philippine peso toppled 0.1%.
Regional stocks were up, with Kuala Lumpur leading the gains and rising more than 0.6% to post its best intraday percentage gain in a week. Stocks in Jakarta gained 0.5%. Singapore was up 0.2%.
HIGHLIGHTS:
** Indonesia's forex reserves drop to $137.5 bln at end-June
** Thai cenbank reserves fall to $218.2 bln in week ended June 30
** Philippines gross foreign reserves at $99.8 billion at end-June - Reuters
