On the US macro front, the 4-week moving average of initial jobless claims declined to 218.8k in the week ending 4 July, from 222.5k previously. The US dollar index (DXY) remains supported, while Treasury yields stayed elevated despite easing modestly yesterday.
We remain cautious on selective regional currencies, particularly the Indonesian rupiah. IDR led regional losses yesterday, with USDIDR rising 0.5% to move back above the 18,000 level. Renewed geopolitical tensions in the Middle East and elevated US yields continue to exert external pressure on the rupiah. While elevated government bond and SRBI yields have helped attract foreign inflows into the bond market, Indonesia continues to face persistent net foreign equity outflows. Adding to concerns, S&P Dow Jones Indices warned that Indonesia could lose its emerging market status if concerns over its equity market persist. The 10-year government bond yields have picked up again to 7.3%. Overall, the balance of risks remains tilted toward further rupiah weakness.
In Malaysia, BNM kept the Overnight Policy Rate unchanged at 2.75% and maintained a broadly neutral policy stance. We expect BNM to remain on hold through the rest of 2026, as current monetary settings continue to support growth while keeping inflation manageable. Domestic fundamentals remain broadly supportive, underpinned by a resilient labour market, healthy investment approvals, and contained inflation at around 2%. Industrial production growth accelerated to 8.4%yoy in May from 8.2% previously, driven by strong gains in the electrical and electronics sector, petroleum products, crude palm oil production, and oil and gas output.
On FX, recent ringgit weakness has been contained below 4.15 against the USD, helped in part by BNM’s measures encouraging government-linked corporates to repatriate overseas earnings. We expect USD/MYR to remain broadly range-bound within 4.00-4.20 in the near term. On rates, our stance on Malaysian government securities (MGS) remains broadly neutral. The carry appeal of 3-year and 5-year MGS has diminished as short-term money market rates have risen disproportionately, reducing the incentive for investors to extend duration further along the curve.
Meanwhile, Taiwan continues to outperform regional peers on exports. June exports rose 40.3%yoy, moderating from 51.7%yoy in May but still reflecting exceptionally strong momentum driven by AI-related demand for advanced semiconductors. Exports to the US increased by 34.8%yoy. However, the robust trade performance has provided little support to the Taiwan dollar, with TWD weakening 0.5% against the USD yesterday.
