Asian Currencies Rally as Fed Rate Odds Dip Further on U.S. Data

  • U.S. retail sales numbers missed forecasts in September
  • Indonesia to unveil stimulus while central bank reviews policy

South Korea’s won, the Malaysian ringgit and Indonesia’s rupiah led gains in Asia as receding odds of a Federal Reserve interest-rate increase in 2015 revived demand for emerging-market assets.

The Bloomberg-JPMorgan Asia Dollar Index has climbed 2 percent in October after falling for five straight months, while China is heading a regional advance in stocks on speculation the central bank will take more measures to shore up weakening growth. Indonesia’s government will announce a fourth round of stimulus on Thursday and policy makers are forecast to keep borrowing costs unchanged. Commodities are also rallying, supporting investor appetite for the rupiah and Malaysia’s ringgit.

“Despite lingering worries about China, Fed rate hike bets have been retarded substantially,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. “Asia’s vulnerabilities may be mitigated and deferred but they are not completely absolved. So near-term volatility risks remain.”

The Asia dollar index rose 0.3 percent on Thursday to a two-month high. The won advanced 1.5 percent after the central bank left the seven-day repurchase rate at a record-low 1.5 percent. The ringgit strengthened 1.5 percent and the rupiah jumped 1.2 percent.

Twenty-one of the 24 emerging-market currencies tracked by Bloomberg have appreciated in October led by the rupiah and the ringgit. Indonesia is a major exporter of palm oil and coal, while Malaysia is Asia’s only major net oil exporter. Currencies and stocks are finding relief from the diminishing Fed bets and paring the year’s losses. Those have been driven by speculation higher U.S. rates would spur capital outflows as local assets became less attractive.

Indonesia Stimulus

Benchmark equity indexes were all up more than 1 percent in China, South Korea, Hong Kong and the Philippines on Thursday. Those for Indonesia and Malaysia rose 0.5 percent and 0.1 percent, respectively.

Indonesia’s government is expected to unveil an additional package aimed at bolstering economic growth, which analysts forecast will weaken to a six-year low in 2015. Thursday’s measures would include a formula for regular minimum wage increases for better business certainty, Coordinating Minister for Economic Affairs Darmin Nasution said on Monday. Bank Indonesia will maintain the benchmark interest rate at 7.50 percent, according to all 25 economists in a Bloomberg survey.

“Market expectations for the Fed rate hike are inching away from this year and into next year,” said Trian Fatria, a treasury research analyst at PT Bank Negara Indonesia in Jakarta. “That gives Indonesia more room to implement the policy packages they’ve announced to prepare the economy and make it more resilient before the Fed raises rates.”

Fed Comments

Elsewhere in Asia on Thursday, the Thai baht climbed 0.9 percent and Taiwan’s dollar appreciated 1.4 percent. India’s rupee was 0.4 percent higher in late trading and the Philippine peso closed up 0.2 percent. China’s onshore yuan was little changed while the Vietnamese dong climbed 0.1 percent.

Interest-rate futures show just a 27 percent chance of a Fed rate hike by the December policy meeting. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, fell by the most in almost two months Wednesday after data showed U.S. retail sales rose 0.1 percent in September from a month earlier, below the median estimate of economists in a Bloomberg survey for a 0.2 percent gain. The August number was revised down to zero.

Fed Governor Daniel Tarullo told the CNBC television channel that he doesn’t currently favor raising interest rates in 2015, after fellow Governor Lael Brainard made the case this week for patience. Fed Chair Janet Yellen said in September that she expected the first increase since 2006 to be warranted by year-end.

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