June 18, 2020 / 5:39 AM / 15 days ago

RPT-EMERGING MARKETS-Indonesia's rupiah in tight range as investors brace for rate cut

 (Repeats to additional codes, no change to text.)
    * Graphic: Foreign flows into Asian stocks tmsnrt.rs/3f2vwbA
    * Indonesia's c.bank expected to cut rates by 25 bps 
    * COVID-19 cases rise in some U.S. states; Beijing imposes
restrictions

    By Nikhil Nainan
    June 18 (Reuters) - Indonesia's rupiah was in a holding
pattern on Thursday as investors eyed the prospect of a
bigger-than-expected interest rate cut later in the day, which
could dent the appeal of the high-yielding currency.
    Asia's foreign exchange markets were choppy in morning
trade, with Korea's won and other regional currencies
following China's yuan higher against the dollar,
though gains were modest amid prevailing investor caution about
the coronavirus.
    The rupiah underpeformed, weighed by outlying worries
Bank Indonesia may deliver a half percentage point cut later in
the day, more than the quarter point cut forecast.
    Southeast Asia's largest economy is facing its first
outright contraction since 1999 in the second quarter due to
restrictions imposed to control the spread of the coronavirus,
which poses a dilemma for the country's central bank, who have
in the past called for a strong currency.
    Traders say the market has largely priced in a quarter point
reduction, but there is both speculation the bank could move
more aggressively or hold off for now.
    "In the event of a larger 50 basis point cut, there could be
wobbles in the rupiah depending on the guidance from the BI,"
said Wei Liang Chang, a macro strategist at DBS Bank. 
    "Our inclination is to view it as a front-loading of
expected rate cuts, with BI likely to stay on hold for the rest
of the year. In this case, the market impact should be fairly
restrained, with rupiah weakness likely to be transitory."
    Bank Indonesia has already cut rates twice this year. A 25
basis point cut to 4.25% would bring the benchmark 7-day reverse
repurchase rate to its lowest in two years.
    The country's share market, a victim of the wobble
in global stock markets in the past week, was also marginally
lower in early trade.
    More broadly, Asian markets tracked a global pullback as
equities investors worried about a fresh wave of coronavirus
infections worldwide and the potential for more lockdowns. 
    Malaysian shares led losses, falling 1.2%, with the
Philippines market also down more than half a percent.
    In currency markets, the Thai baht and the won
gained 0.4% each.
    "While the big picture outlook remains so uncertain,
investor behaviour will tend to be reactive rather than
strategic," Paul O'Connor, the head of multi-asset at Janus
Henderson Investors said in a note.
    Beijing cancelled scores of flights, shut schools and
blocked off some neighbourhoods after a new cluster of cases
were found in recent days, just as several U.S. states reported
a surge in new coronavirus infections.
    "Now that the reopening trade is well priced in, markets
have to deal with the trickier issue of evaluating what the
economic recovery will look like beyond the next couple of
months," O'Connor added.        
            Asia stock indexes and currencies at 0403 GMT
 COUNTRY      FX          FX        FX      INDEX    STOCKS   STOCKS
              RIC         DAILY %   YTD %            DAILY %  YTD %
 Japan                    +0.19     +1.69            -0.39    -5.45
 China                    +0.16     -1.54            0.03     -3.71
 India                    0.00      -6.26            -0.04    -18.89
 Indonesia                +0.00     -1.03            -0.04    -20.88
 Malaysia                 +0.12     -4.31            -1.17    -5.06
 Philippines              +0.18     +1.34            -0.65    -20.12
 S.Korea                  +0.41     -4.35            -0.19    -2.76
 Singapore                +0.08     -3.41            -0.20    -17.33
 Taiwan                   +0.35     +1.79            -0.05    -3.90
 Thailand                 +0.42     -3.76            -0.50    -13.33
 
 (Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Sam
Holmes)
  
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