Emerging Asian currencies pushed higher against a softening dollar on Tuesday, buoyed by receding expectations of a near-term Federal Reserve rate increase, though escalating Middle East tensions and a jump in crude prices kept gains in check.
The Taiwan dollar strengthened as much as 0.2% to 31.774 per dollar, its firmest level in almost two months, while the South Korean won climbed 0.5% to a one-week high. The moves extended a broader regional trend that has seen the MSCI gauge of emerging market currencies touch record levels in recent sessions.
The dollar hovered near a two-month low against major peers after a run of tepid U.S. economic data prompted traders to scale back bets on another Fed hike in September. HSBC analysts noted the Taiwan dollar could regain further ground as dividend-related outflows from the island ease, while support for the won may come from foreign investors rotating out of South Korean equities and from Korean retail investors continuing to buy U.S. stocks.
Higher oil prices, driven by the risk of a wider conflict in the Middle East, tempered the regional currency rally. Costlier crude typically pressures energy-importing Asian economies by inflating import bills and widening current-account deficits. The Malaysian ringgit firmed 0.2%, while the Philippine peso slipped 0.3%, headed for a fourth consecutive session of declines. The Thai baht and Singapore dollar each eased 0.1%.
Indonesia’s rupiah weakened 0.1%, giving back some ground after gaining nearly 1% over the previous two weeks. Jakarta’s stock market, however, outperformed regional peers with a 1.3% advance, even as the benchmark index remains down roughly 25% this year. The rally came ahead of Bank Indonesia’s policy decision on Wednesday, with the central bank widely expected to hold its benchmark rate at 5.75% following last month’s surprise pause and a package of measures aimed at attracting capital inflows.
Fakhrul Fulvian, chief economist at Trimegah Securities, said the equity rebound reflected a broader reassessment of Indonesia’s economic outlook after markets had priced in an overly pessimistic scenario, rather than expectations tied solely to the central bank’s impending decision.
Indonesian markets have faced pressure this year after MSCI warned the country’s stock market could be downgraded to frontier-market status on access and transparency concerns. Jakarta has since announced reforms including higher free-float requirements, and the index provider in June deferred a decision on the review until November.
Regional equities were mixed. The MSCI emerging Asia equities index fell 0.7%, dragged lower by losses in Taiwan and South Korea, its two largest constituents. Taiwan stocks dropped 1%, while the KOSPI declined 1.1%. Singapore shares lost 1.3% after gaining about 0.8% over the prior two sessions, and Philippine stocks shed 0.7%.
The previous session had painted a brighter picture for regional assets. The MSCI emerging markets equities index climbed 0.7% to its highest level since July 10, with Taipei’s benchmark up 58.7% for the year on sustained foreign appetite for AI-linked chipmakers. South Korea’s KOSPI, one of the world’s best-performing markets this year with gains of 65.6%, was closed Monday for a public holiday.
Thailand’s baht was little changed after data showed the economy expanded 1.9% in the second quarter, exceeding expectations, while the state planning agency lifted its full-year growth forecast. Malaysia’s currency inched higher after July inflation came in at 1.8%, slightly below forecasts.
Japan’s yen was up 0.1% on Monday as the Nikkei added 0.3%, after data showed the economy grew at a slower-than-expected pace in the April-June quarter amid lackluster household spending and business investment.
Investors across the region are now focused on Bank Indonesia’s rate decision as the next major policy catalyst, with the outcome expected to set the tone for Southeast Asian markets through the remainder of the week.
