IDR: Rupiah Weakens Further, BI on Hold Next Week
- A second day of losses sees the Rupiah holding on to small gains for the week.
- USDIDR is up +15 today to be near 16,838 /16,848 as it consolidates back above the 20-day EMA of 16,813.
- Weekly Rupiah gains are hard to come by and the ailing currency is holding onto gains of +.21%
- The BI meets on Feb 19 next week with current consensus from forecasters for no change. With 150bps of cuts last year, the BI is focused on improving the transmission mechanism for rates and stabilizing the Rupiah, with both challenges needing considerable attention. We see the BI on hold next week in further support of the currency and in a week impacted by lunar new year, expect the rupiah to trade in a Rp16,750 - 16,900 range.
- On Wednesday this week the central bank reiterated its commitment to stabilizing the rupiah through measured interventions in the spot market and domestic non-delivery forward (DNDF) markets as the next meeting to decide monetary policy approaches.
- The Ministry of Finance stated this week that it is working closely with BI to synchronize fiscal and monetary policies to ensure the rupiah remains within a projected 2026 range of IDR 16,500 to 16,900 per dollar.
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JGBS AUCTION: 5-Year Supply Shows Lacklustre Demand Metrics
Today’s 5-year JGB auction delivered weakish demand signals. The low price was below expectations at 99.81, the bid-to-cover ratio fell to 3.0811x from 3.1676x, and the tail widened to 0.05 from 0.04.
- The result aligns with the weakish results seen at this month’s 10-year and 30-year auctions, and last month’s poor 2-year auction.
- Back in December, Reuters reported that the Japanese government will increase issuance of 2-year and 5-year JGBs from January as part of its stimulus-funding plan. Issuance rose by around Y100bn today. Reuters also noted that there was no changes to the planned issuance for 10-40-year tenors.
- Overall, with an outright yield and the 2s/5s curve near cycle highs, today’s outcome points to generally poor demand conditions.
- In the aftermath, the 5-year sector is slightly cheaper in afternoon trading.
JGBS AUCTION: 5-Year JGB Auction Results
The Japanese Ministry Of Finance (MoF) sells Y1,928.0bn 5-Year JGBs:
- Average Yield (%): 1.639 (prev. 1.435)
- Average Price: 99.82 (prev. 99.84)
- High Yield (%): 1.650 (prev. 1.444)
- Low price: 99.77 (prev. 99.80)
- % Allotted At High Yield (%): 0.4826 (prev. 37.7565)
- Bid/Cover: 3.0811x (prev. 3.1676x)
CNY: Scope For More Outperformance Before It Threatens Export Outlook
Export growth was better than forecast at +6.6%y/y, remaining positive for much of 2025 and a bright spot in terms of broader growth drivers. More broadly, the trade outlook for 2026 faces uncertainty in terms of broader economic relations, along with external demand. The yuan has been outperforming against its trading peer in basket terms. Most prominent in recent dealings has been the break higher in CNY/JPY to above 22.80 (fresh highs sicne the 1990s). Still, current CNY CFETS basket tracker levels, 98.76, are sub Jan 2025 levels (100.7). So we arguably need to see more sustained CNY outperformance before it threatens the export outlook.
- The chart below plots the CNY CFETS basket tracker in y/y terms, against China export growth. There has been period over the past decade where the basket gains have coincided with periods of weaker or declining export growth momentum. However, these are often at y/y rates notably higher than those currently prevailing.
- If current basket levels hold then we will be back in positive y/y territory by April. The basket is around 3.9% higher than July lows from last year as well.
- Still, it is difficult to make the case that CNY outperformance will derail export growth currently. On top of this, arguments may also continue to be made of the yuan's cheapness relative to the strength of its external balances.
Fig 1: CNY CFETS Basket Tracker Y/Y & China Export Growth
Source: Bloomberg Finance L.P./MNI
