Asia FX: Inflation and trade shifts shape KRW and IDR – BNY

BNY's Bob Savage flags continued KRW weakness despite stronger South Korean inflation, which supports a hawkish Bank of Korea (BoK) stance. In Indonesia, Purchasing Managers' Index (PMI) data show fragile manufacturing, while inflation has moved above expectations even after a 50 bp rate hike. Rising export and import prices and a solid trade surplus complicate the outlook for the Rupiah.

Higher prices and mixed activity data

"South Korean headline inflation rose to 3.1% y/y in May, the highest in 26 months, as higher oil prices and a weaker won lifted import costs and pushed up petroleum product prices, especially gasoline and diesel."

"The data strengthen the case for the BoK to maintain a hawkish stance and consider rate hikes in the coming months."

"Indonesian inflation was 3.08% y/y in May, up from 2.42% in April and slightly above market expectations, as higher food and transport prices pushed price growth closer to the upper end of Bank Indonesia’s target band."

"The reading follows a 50bp rate hike by Bank Indonesia in May, which was aimed at containing inflation risks from stronger global oil prices and a weaker rupiah."

"Indonesia’s export and import price indexes for Q1 both rose strongly, pointing to firmer external price conditions."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)