Asian currencies mixed as dollar firms, yen slips ahead of Fed decision

Asian currencies showed mixed performance as the U.S. dollar gained strength and the yen weakened ahead of the Federal Reserve's upcoming decision. The dollar index increased by 0.2%, while the USD/JPY pair surged by 0.2%, further eroding the yen's momentum from last week's safe-haven rally. Meanwhile, the EUR/USD and GBP/USD pairs declined by 0.1% to 1.3331.

The USD/IDR pair surged by 0.19% to 18,129.1, bringing the Indonesian rupiah close to its weakest levels in recent history. The rupiah had also slipped 0.4% on Monday, nearing a record low observed in early June. This decline was fueled by foreign outflows, driven by concerns over Indonesia's potential loss of emerging-market status under MSCI's classification and fears of reduced foreign investment in Indonesian equities.

Bank Indonesia had previously committed to making necessary adjustments to its policy tools to maintain rupiah stability. It maintained its benchmark rate at 5.75%, opting for currency intervention and stronger hedging incentives instead of a benchmark-rate increase, which could have negatively impacted the domestic economy. The central bank also raised its deposit facility rate to 5.00% from 4.75% and intensified incentives aimed at attracting foreign capital to support the rupiah.

In contrast, the Chinese yuan remained stable, with the USD/CNH pair trading around 6.6678, while the USD/CNY pair fell by 0.03% to 6.6683. The South Korean won showed a modest strengthening trend, with the USD/KRW pair declining by 0.1% at 1,324.36. The Australian dollar edged up by 0.1% to $0.7025, and the New Zealand dollar increased by 0.3% to $0.5695.

Foreign investor sentiment remained primarily focused on this week's central-bank decisions, with the Federal Reserve's anticipated pause and the Bank of Japan's policy guidance expected to significantly impact the dollar-yen pair. Continued outflows from Asian markets, however, left the Indonesian rupiah particularly susceptible to further downward pressure.