ASEAN currencies will gain strength in the coming months as global headwinds weaken and monetary policies ease, according to Maybank FX Research & Strategy.
In a report released Monday, the Singapore-based foreign exchange market analyst said that the Indonesian rupiah, Malaysian ringgit, Thai baht, and Philippine peso will increase in value amid a declining US dollar, lower interest rates, and progress on trade diplomacy.
“Investors definitely have a non-exhaustive list of issues that they have to deal with,” Maybank said. “However, amid these uncertain times, we have reason to believe that Asean FX (foreign exchange) may actually have upside risks.”
The report pointed out that weaker dollar conditions have historically boosted capital inflows into local-currency government bonds across the region. An example is a high-yielding market like Indonesia, where declining returns from currency depreciation in recent years may reverse if the rupiah stabilizes or strengthens.
In the Philippines, a narrowing trade deficit — helped by a weak dollar and a rebound in electronics exports — has supported the peso. However, export growth may drop in the second half of the year, making dollar softness even more vital for peso stability, Maybank said.
Yet most Asean currencies still lagged behind the G10 in terms of performance since late March, the report continued, saying that while the Thai baht and Malaysian ringgit have fared relatively better, the Indonesian rupiah and Philippine peso remain underperformers.
The “underappreciation” of these currencies was due to investors preferring higher-rated countries with more liquid currencies, the report explained.
“Nonetheless, we remain confident for the Asean FX … as more trade deals are struck, investors would get more clarity regarding the global situation, and, in time, appetite towards the EM (emerging markets) assets, such as those in Asean, can improve,” the report emphasized.
Indonesia is forecast to benefit the most from improving investor flows, followed by Malaysia, Thailand and the Philippines.
Peso rebound
The peso is seen rebounding to P55:$1 in the third quarter, and further appreciating to P54:$1 for the rest of the year until 2026.
Indonesia recently secured a trade agreement with the United States, reducing tariffs from 32 to 19 percent. While fiscal concerns have dampened sentiment toward the rupiah, Maybank said the trade pact adds a layer of certainty that could encourage investment.
The Philippines is pushing to lower its 19-percent tariff deal with the US, Maybank noted, adding that while not as export-oriented as its peers, the peso could still gain value from improved macroeconomic sentiment.
Cutting interest rates
Maybank also pointed out that several central banks in the region still have room to cut interest rates due to low inflation and weakening growth.
“Given a dollar softness environment, rate cuts have likely been more crucial in giving support to bonds and currencies as yield differentials have mattered less,” Maybank said.
Indonesia’s central bank has the most space for easing, with analysts estimating it could cut up to 175 basis points before reaching a neutral stance.
The Bangko Sentral ng Pilipinas (BSP) and the Bank of Thailand are also seen to have 75 basis points of easing capacity. While Malaysia’s central bank is not expected to ease further, the existing yield differential and overall bond environment remain supportive.
The BSP policymaking Monetary Board is set to meet again on Aug. 5 for the July inflation data, which could also determine its policy stance.
BSP Governor Eli Remolona Jr. previously said there’s room for two more rate cuts this year amid an improving inflation outlook and slowing economic growth.
The Monetary Board slashed its key policy rates by a quarter-point in its last June meeting, bringing the rates to 5.25 percent.
