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Asian currencies, bonds rally on Fed signals of pause in tightening

May 4, 2023 at 6:00 pm | Economic Affairs

May, 04(Agencies) — South Korean won and Indonesian rupiah led gains among Asian currencies and regional bonds rallied on Thursday following US Federal Reserve signals of a pause in its aggressive policy tightening cycle.
Fed raised its benchmark interest rate by a quarter of a percentage point overnight, but an omission from its policy statement marked a change in tone, as it no longer said it “anticipates” further rate increases would be needed.
A pause should give Fed officials time and space to assess inflationary trends and ongoing challenges such the fallout from recent bank failures and the political standoff over the US debt ceiling.
Rupiah appreciated 0.8% to 14,570 per US dollar, hitting its highest level since June 10, 2022. Local 10year benchmark bond’s yield slipped to 6.467% – its lowest level since February last year.
Rupiah is the best performing currency in Asia this year, having risen nearly 7%.
Bank Indonesia has stood pat on rates in its last three meetings, and has said that strong capital inflows are likely to support the currency.
“IndoGBs (Indonesian government bonds) benefit from the constructive bond environment in the US at the moment, and a sanguine supply outlook domestically,” said Frances Cheung, rates strategist at OCBC.
“That said, chasing yields lower is not preferred given the still compressed yield differentials with U.S Treasuries.”
US Treasury yields dropped to 3.3337%. The greenback was down 0.1%.
South Korea’s won rose over 1% in its biggest single-day gain in three weeks. The benchmark 10-year yield slipped to 3.287%.
Equities mostly traded in narrow ranges. China’s benchmark index opened weaker as mainland markets returned after their May Day holidays but rebounded, led by state-owned firms.

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