Asian currencies and stocks rally on vanishing Fed rate hike bets, STI up 1%

A businessman walks past a share price board in Tokyo on Oct 14.
A businessman walks past a share price board in Tokyo on Oct 14. PHOTO: AFP

KUALA LUMPUR (BLOOMBERG) - Indonesia's rupiah rose to a four-month high and led gains in Asia on Thursday (Oct 15) as receding odds of a Federal Reserve interest-rate increase in 2015 revived demand for emerging- market assets.

The Bloomberg-JPMorgan Asia Dollar Index has climbed 1.9 per cent in October after falling for five straight months, while China is heading a regional advance in stocks on speculation the central bank will take more measures to shore up weakening growth. Indonesia's government will announce a fourth round of stimulus on Thursday and policy makers are forecast to keep borrowing costs unchanged. Commodities are also rallying, supporting investor appetite for the rupiah and Malaysia's ringgit.

"Despite lingering worries about China, Fed rate hike bets have been retarded substantially," said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. "Asia's vulnerabilities may be mitigated and deferred but they are not completely absolved. So near-term volatility risks remain."

The Asia dollar index rose 0.2 per cent to a two-month high and the rupiah jumped 2.4 per cent. The ringgit strengthened 1.8 per cent and Taiwan's dollar appreciated 1.4 per cent. South Korea's won advanced 1.2 per cent after the central bank left the seven-day repurchase rate at a record-low 1.5 per cent.

Twenty-one of the 24 emerging-market currencies tracked by Bloomberg have appreciated in October led by the rupiah and the ringgit. Indonesia is a major exporter of palm oil and coal, while Malaysia is Asia's only major net oil exporter. Currencies and stocks are finding relief from the diminishing Fed bets and paring the year's losses. Those have been driven by speculation higher US rates would spur capital outflows as local assets became less attractive.

Benchmark stock indexes were all up more than 1 per cent in China, South Korea, Hong Kong and the Philippines on Thursday. Those for Indonesia and Malaysia rose 0.9 per cent and 0.4 per cent, respectively.

Singapore's Straits Times Index was up 1.03 per cent at 3,014.61 as of 12:13 pm.

Indonesia's government is expected to unveil an additional package aimed at bolstering economic growth, which analysts forecast will weaken to a six-year low in 2015. Thursday's measures would include a formula for regular minimum wage increases for better business certainty, Coordinating Minister for Economic Affairs Darmin Nasution said on Monday. Bank Indonesia will maintain the benchmark interest rate at 7.50 per cent, according to all 25 economists in a Bloomberg survey.

"Market expectations for the Fed rate hike are inching away from this year and into next year," said Trian Fatria, a treasury research analyst at PT Bank Negara Indonesia in Jakarta. "That gives Indonesia more room to implement the policy packages they've announced to prepare the economy and make it more resilient before the Fed raises rates."

Elsewhere in Asia on Thursday, the Thai baht climbed 0.9 per cent, India's rupee advanced 0.5 per cent and the Philippine peso rose 0.3 per cent. China's onshore yuan appreciated 0.1 per cent and the Vietnamese dong 0.1 per cent.

Interest-rate futures show just a 31 per cent chance of a Fed rate hike in 2015. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, fell by the most in almost two months Wednesday after data showed U.S. retail sales rose 0.1 per cent in September from a month earlier, below the median estimate of economists in a Bloomberg survey for a 0.2 per cent gain. The August number was revised down to zero.

Fed governor Daniel Tarullo told the CNBC television channel that he doesn't currently favor raising interest rates in 2015, after fellow Governor Lael Brainard made the case this week for patience. Fed chair Janet Yellen said in September that she expected the first increase since 2006 to be warranted by year-end.