India’s Rupee As The Best-Performing Asian Currencies | The Bank Of Korea Will Not Slow Down Rate Hikes Until Inflation Declines Significantly
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USD/CNY
Current spot: 7.1467
• China’s yuan slid sharply through most of September in defiance of warnings from the People’s Bank of China about one-way bets and some aggressive daily fixes. The currency hit its weakest level in 14 years. A global risk rally on pivot hopes and the Golden Week holidays probably stopped the CNY from weakening even further.
• Ongoing problems relating to the property sector and only gradual tweaks to the zero Covid policy will likely keep the CNY under pressure towards the end of the year.
• The 20th Congress starting on 16 October may provide a reason for a re-think, but until then, weaker seems the more likely direction for the CNY than stronger.
USD/INR
Current spot: 82.33
• India’s rupee was one of the best-performing Asian currencies in the first half of September, though rapidly falling Reserve Bank of India FX reserves suggest that this came at a price.
• Maybe the RBI decided that there was no point depleting reserves further, or maybe it was the news that JP Morgan would not include Indian government securities in its global bond index until next year, in any case, the INR has reverted to type and slumped past 82.00.
• We doubt this is it. Inflation is picking up again, and the RBI will probably want to feather its next rate moves to give the economy every chance after disappointing in 2Q22.
USD/IDR
Current spot: 15312
• Indonesia’s rupiah traded sideways in early September before retreating on inflation concerns and as foreign investors grew more anxious about EM exposure in the light of Fed rate intentions.
• Bank Indonesia surprised markets with a punchy 50bp rate hike at its 22 September meeting. BI Governor Warjiyo justified the move as pre-emptive action ahead of the impact of price hikes on subsidised fuel.
• BI has stepped up intervention to steady the rupiah, but we still expect currency weakness as risk sentiment fades. Additional tightening from BI may slow the pace of weakness, and Indonesia’s inflation is less worrying than some of its peers.
USD/KRW
Current spot: 1427.60
• The Korean won has been on a roller coaster ride during September, showing typical high beta currency movement.
• FX reserves fell by USD 19.6bn over the month as the authorities intervened. However, trade weakness continued, and as global liquidity conditions become tighter, and the interest gap between Korea and the US continues to widen, we expect more weakness.
• Despite growing concerns about recession, the Bank of Korea has made it clear that hikes will not end until inflation slows significantly. September inflation came down to 5.4% year-onyear, but it will rise again in October. As such, we expect the BoK to make a 50bp hike decision in October and a 25bp hike in November.
This article is a part of a report by ING Economics available here.
Disclaimer
This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
