Friday, August 12

Indian rupee slips, strong dollar keeps Asian FX muted


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The Indian rupee weakened half a percent

on Thursday ahead of a widely expected rate increase on Friday,

while most other Asian currencies struggled for direction as the

dollar stayed strong and Federal Reserve officials indicated

more rate hikes to come.

Equities in the region were mixed, with markets in Malaysia

Thailand, and South Korea advancing as

much as 0.7%, while benchmarks in the Philippines, Taiwan

and Indonesia slipped up to 0.5%.

The rupee hit a one-week low on widening trade

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deficit and global flows into the safe-haven dollar, while bond

yields ticked lower on falling global oil prices.

The currency, which has weakened more than 6% so far this

year, is expected to trade near its record low in the coming

quarter, a Reuters poll showed. However, the widely expected

rate-hike decision from the Reserve Bank of India (RBI) on

Friday is seen providing some stability to the wobbly currency.

Analysts are divided over the size of the expected hike,

with views widely split between 25 basis points and 50 basis

points, according to a Reuters poll of economists. Analysts at

Barclays, Citi, and DBS expect a 35-bp hike.

In Thailand, the baht appreciated 0.2% as investors

awaited the central bank to hop on the global policy tightening

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bandwagon in a meeting next week, with analysts at DBS Group

saying a 25-bp hike had been fully priced by the market.

“We think there is a non-negligible risk that the Bank of

Thailand might be debating bigger moves, especially given the

context of multi-year high inflation and hawkish surprises by

Asian central banks,” they added.

Other currencies were struggling for headway as the US

dollar index appreciated slightly. The greenback has

gained 0.5% so far this week as investors priced in potential

future rate hikes.

Treasury yields slipped, with those on the 10-year note

at 2.7318% on strong factory orders data. Market

participants now await non-farm payrolls data, due on Friday,

which could determine the Fed’s tightening path.

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Meanwhile, the Bank of England is expected to raise interest

rates by the most since 1995 later in the day, a Reuters poll

showed, attempting to stop a surge in inflation even at the risk

of recession.

Regional bond yields were flat-to-low, with returns on

high-yield notes: India and Indonesia at

7.220% and 7.219%, respectively.

HIGHLIGHTS:

**US 2-year yields edge lower to 3.0999%

** Foreigners turn sellers of Chinese shares in July on

COVID worries

** FX markets haven’t seen last of dollar strength yet –

analysts – Reuters poll

Asia stock

indexes and

currencies

at 0627 GMT

COUNTRY FX FX FX INDEX STOCKS STOCKS

RIC DAILY % YTD % DAILY % YTD %

Japan -0.28 -14.27 0.7 -2.99

China +0.09 -5.90 0.54 -12.61

India -0.44 -6.52 -0.75 -0.55

Indonesia -0.15 -4.57 0.29 7.38

Malaysia +0.07 -6.47 0.55 -2.52

Philippines -0.04 -8.49 0.30 -9.45

S.Korea -0.08 -9.36 0.54 -16.89

Singapore +0.03 -2.25 0.35 4.47

Taiwan -0.07 -7.78 -0.51 -19.30

Thailand +0.21 -7.61 0.30 -3.50

(Reporting by Sameer Manekar in Bengaluru; Editing by

Subhranshu Sahu)

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