Business: Asian currencies and stock markets fall as dollar remains stable

DELHI Delhi. Emerging Asian currencies and stocks fell on Tuesday, with Indonesia seeing a drop ahead of a monetary policy meeting, as investors digested dovish comments from the Fed chief and rising chances of Donald Trump winning the US presidential race. The dollar edged slightly away from a five-week low after Fed Chairman Jerome Powell’s comments showed investors were mulling the case for cutting interest rates in September.Markets were assessing the consequences of Trump’s potential return to the White House, amid growing concerns that his aggressive trade policies, loose fiscal plans and potential tax incentives could boost inflation.

Jeff Ng, head of Asia macro strategy at SMBC, said Trump’s re-election “could strengthen the USD and put more headwinds on the local currency.” “This is likely due to the higher inflation and interest rate outlook in the US over the medium term, posing risks to the current account balance in Asia.” The dollar’s strength has put pressure on risk-sensitive emerging market assets, forcing developing countries to raise borrowing costs to stem capital outflows, hurting economic growth. The Indonesian rupiah slipped 0.3 per cent, while equities in Jakarta fell 0.5 per cent ahead of a Bank Indonesia (BI) meeting on Wednesday, where it is widely expected to keep interest rates unchanged. “We expect slightly higher levels above 16,000 in the near future,” Jeff said, referring to the rupiah’s level against the dollar. Jeff said the dollar-rupiah pair will go below the 16,000 level as the Fed’s rate cut will help widen the yield gap with Indonesia. Elsewhere, the Malaysian ringgit declined and Thailand’s baht fell 0.3 per cent, while the Singapore dollar was largely steady. Equities in Malaysia fell 0.2 per cent, giving up early gains. On the other hand, stocks in Taiwan rose as much as 1.2 percent. Philippine and South Korean shares rose, while Singapore and Indonesia lost 0.3 percent and 0.5 percent, respectively.

The Chinese yuan and the Shanghai Composite Index fell for a second consecutive day after data on Monday showed the world’s second-largest economy grew at a much slower pace than expected in the second quarter. “The big picture is that the Chinese economy still needs more stimulus, while most importantly, meaningful long-term reforms are needed to change market sentiment,” MUFG analysts wrote.