Indonesia's rupiah was set for its biggest weekly fall since late May on Friday, pressured by rising US Treasury yields, a stronger dollar and expectations that US interest rates will remain higher for longer.
The rupiah extended losses, weakening as much as 0.3% to 17,935 per dollar on the day. It has declined nearly 1% so far this week.
Bank Indonesia on Wednesday kept its benchmark interest rate unchanged at 5.75%, after raising it by a cumulative 100 basis points between May and June to support the weakening rupiah.
The central bank signalled it would rather support the rupiah through market-based measures as elevated oil prices and higher US yields pressure the currency.
Although the rate hold was understandable, "the market is looking for stronger signals that BI will prioritise rupiah stability," said Lukman Leong, chief analyst at Doo Financial Futures.
A more credible fiscal policy, central bank intervention and stronger foreign capital inflows are needed to put the rupiah on a more sustained recovery path, Leong said.
The rupiah has been the worst performer among emerging Asian currencies, falling 7% as fuel subsidies aimed at shielding consumers from soaring oil prices have added to fiscal strains and heightened concerns over the government's expansive spending plans.
The outlook for domestic capital flows also adds to the rupiah's vulnerability, Leong said, pointing to recent weakness in Indonesian equities.
The benchmark Jakarta Composite Index was down 0.6% on the day and more than 27% year-to-date.
Among other regional currencies, the Thai baht and the Indian rupee traded flat. The broader mood remained cautious as a sharp overnight rise in oil prices pushed 30-year US Treasury yields to their highest since 2004, while a stronger dollar continued to weigh on regional currencies.
The US dollar has climbed more than 1% so far this week, hitting a two-month high and heading for its first back-to-back weekly gains since June.
The Malaysian ringgit, the South Korean won and Taiwan's dollar rebounded from Thursday's losses, strengthening between 0.3% and 0.7%.
Regional equity markets ticked higher, with China, South Korea and Taiwan closed for holidays. Stocks in Thailand and the Philippines rebounded from the previous session's losses, rising 0.4% and 1.7%, respectively, while equities in Singapore added 0.5%.
"Markets today appear to be in a holding pattern, with lighter trading volumes as several key Asian markets are closed for holidays, helping regional equities absorb the rise in oil yields without a sharp risk-off move," said Gary Tan, portfolio manager for emerging market equities at Allspring Global Investments.
Investors were also monitoring a summit between US President Donald Trump and Chinese President Xi Jinping in Washington amid no signs of breakthroughs on thorny issues such as AI, trade and Taiwan.
HIGHLIGHTS:
** Thai cenbank reserves fall to $280.1 bln in week ended Sept 18
** Indonesia government commits to cooperative loan repayments as deadline looms
** Thai August exports rise 24.3% on-year, close to forecast - Reuters
