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BENGALURU (July 18): Asian currencies and equities firmed on Monday (July 18), as investors dialled back bets of a bigger interest rate hike by the US central bank this month.
Major Wall Street indices rallied last Friday after two Federal Reserve (Fed) officials indicated that the central bank would raise interest rates by 75 basis points in its July 26-27 meeting rather than a full-percentage-point hike.
“Last Friday’s relief rally was fuelled by the notion that the Fed would hike rates by ‘only’ 75 basis points this month rather than 100 basis points. That said, recent data suggests the Fed still has a long way to go in terms of tightening,” analysts at private investment firm BBH said.
“On the other hand, Chinese GDP (gross domestic product) data came in weaker than expected, so the global backdrop for EMs (emerging markets) remains challenging.”
China’s economic growth slowed sharply in the second quarter and missed expectations as widespread lockdowns to curb Covid-19 cases hit consumer spending and industrial activity.
Equities in South Korea climbed 1.8% to lead gains in Asia, followed by Singapore stocks.
Among currencies, the South Korean won climbed 0.7% to be the top gainer. The Singapore dollar rose 0.1%, while the rupiah was largely flat.
A combination of aggressive Fed interest rate hikes and wobbling economies in Europe and China helped the greenback scale a two-decade high this year.
“USD (US dollar) bulls could turn cautious this week, but this should not be mistaken for a collapsing USD, and certainly not a durable inflection in Fed-driven bout of USD strength that continues to prevail,” said Vishnu Varathan, the head of economics and strategy for Asia at Mizuho Bank.
Meanwhile, Indonesia scrapped its export levy for all palm oil products until Aug 31 to help boost exports and ease high inventories, Finance Ministry officials said, adding that the move would not disrupt government revenue.
Indonesian 10-year benchmark yields climbed 1.6 basis points to 7.381% ahead of a Bank Indonesia (BI) meeting, where analysts expect the central bank to stand pat on interest rates.
BI governor Perry Warjiyo, however, said on Sunday the central bank would not hesitate to hike rates when inflation starts to pick up fundamentally.
“In BI’s defence, IDR depreciation has not stuck out like a sore thumb, giving it some room to manoeuvre. Nevertheless, given the hawkish surprises from regional peers, we suspect BI will be forced into tightening in its July 21 meeting,” Mizuho Bank analysts said in a note.
Markets continued to monitor the economic situation in China, where Covid-19 flare-ups and a deep slump in its property market have cast a cloud over its growth.
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