EMERGING MARKETS – Currencies muted as investors see fallout from Pelosi’s visit to Taiwan

Band Sameer Manekar

August 3 (Reuters)Most Asian currencies traded on Wednesday as investors weighed the potential fallout from US House Speaker Nancy Pelosi’s visit to Taiwan, which angered China, while the southern won The Korean currency and the Indonesian rupiah recorded modest losses.

The safe haven Japanese yen JPY=which has appreciated more than 2% in recent sessions, came under pressure from an uptick in US Treasury yields following hawkish comments from US Federal Reserve officials and an easing of geopolitical tensions.

The won KRW=KFTC weakened for the fourth straight session, dropping as much as 0.8% to hit a nearly two-week low, while the rupiah RDI= depreciated 0.2% – its third straight day of losses – as US-China tensions simmered.

Among other regional currencies, the Malaysian ringgit MYR=Thai baht THB=THPhilippine peso PHP=singapore dollar CAD= and Taiwan dollar TWD=TP all drifted within tight ranges.

US Treasury yields jumped overnight after Fed officials signaled their determination to tame inflation by raising interest rates, although yields fell early on Wednesday as China took measures against Taiwan following Pelosi’s visit to the island, which it considers to be part of its territory.

“Immediate market attention turns to … the risk of escalation once the Speaker of the United States House leaves the region,” Stephen Innes, managing partner of SPI Asset Management, said in a note.

The market will then consider whether there should be a “medium-term repricing of risk in sensitive assets in Taiwan, including the Taiwan dollar and equities and likely a contagion effect in the Asian market,” Innes added.

Meanwhile, bond yields on high yield bonds in the region – India IN10YT=RR and Indonesia ID10YT=RR – followed their American counterparts, reaching 7.245% and 7.253% respectively.

Indonesia, Southeast Asia’s largest economy, likely grew in the June quarter, helped by strong exports and private consumption, according to a Reuters poll. However, a slowdown in China and the risks of a global recession posed significant risks in the months ahead.

In India, the rupee RNI=IN traded at a five-week high, which it touched in the previous session, helped by portfolio inflows and dollar selling by exporters.

Gaurang Somaiya, associate vice president of Motilal Oswal Financial Services, expects the market to be cautious ahead of the Reserve Bank of India’s (RBI) monetary policy decision on Friday, with its stance on inflation and growth likely to influence the rupee.

Analysts differ on the size of an expected RBI rate hike, with Barclays, Citi and DBS expecting a 35 basis point (bps) hike, while forecasts from 63 economists polled by Reuters ranged from 25 bps at 50 bps.

Somaiya expects a 35bp hike and sees the RBI maintaining a hawkish stance, thus keeping the rupee supported at lower levels, he added.

Regional equities were higher overall, rising as much as 0.5%, while Malaysian equities .KLSE decreased by 0.8%

STRONG POINTS:

** US 2-year yields, which reflect rate expectations, at 3.0162%

** China’s services business in July grows at fastest pace in 15 months – Caixin PMI

** Singaporean bank OCBC’s Q2 profit jumps 28%, optimistic about outlook

Asian stock indices and currencies at 03:51 GMT

COUNTRY

Effects

RIC

Effects

DAILY %

Effects

YTD %

INDEX

INVENTORY

DAILY %

INVENTORY

YTD %

Japan

JPY=

+0.17

-13.43

.N225

0.5

-3.7

China

CNY=CFXS

-0.02

-5.87

.SSEC

0.40

-12.11

India

RNI=IN

-0.06

-5.63

.NSEI

0.00

-0.05

Indonesia

RDI=

-0.19

-4.48

.JKSE

0.25

6.44

Malaysia

MYR=

-0.04

-6.53

.KLSE

-0.56

-3.31

Philippines

PHP=

+0.00

-8.29

.PSI

0.24

-10.46

South Korea

KRW=KFTC

-0.39

-9.25

.KS11

0.56

-17.61

Singapore

CAD=

+0.04

-2.32

.STI

0.26

3.97

Taiwan

TWD=TP

-0.05

-7.78

.TWII

-0.11

-19.14

Thailand

THB=TH

+0.06

-7.76

.SETI

0.08

-4.05

(Reporting by Sameer Manekar in Bengaluru; Editing by Kim Coghill)

(([email protected]; Twitter: https://twitter.com/sameer_manekar))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Robert D. Coleman