What’s going on here?
The Malaysian ringgit and Thai baht tumbled over 1% after Fed Chair Jerome Powell hinted that oversized rate cuts aren’t on the cards for November, pushing the dollar higher.
What does this mean?
Emerging Asian currencies have enjoyed a good run, supported by political stability, foreign inflows, and positive economic prospects. However, Powell’s latest comments strengthened the dollar, leading to a swift decline in the ringgit and baht, both of which were performing well just before this. The ripple effect also saw other ASEAN currencies like the Taiwan dollar, Indonesian rupiah, Philippine peso, and Singapore dollar trading lower. China’s and South Korea’s markets were closed, but key economic indicators from these regions will be closely watched in the coming days, especially with the upcoming US jobs report that could further impact the Fed’s rate cut decisions.
Why should I care?
For markets: Dollar strength shakes emerging markets.
The Federal Reserve’s stance on interest rates has a profound impact on global markets, particularly in emerging economies. The recent remarks from Powell about sticking to modest rate cuts triggered a stronger dollar, causing significant currency depreciation in Malaysia, Thailand, and other ASEAN countries. This downturn underscores how sensitive emerging markets are to US monetary policy.
The bigger picture: Rate cuts and economic stimulus set the tone.
Globally, central banks are navigating a tricky landscape of balancing growth and inflation. Both Indonesia and the Philippines have already begun easing monetary policies, and experts suggest we may see more aggressive rate cuts due to recent moves by the Fed and China’s stimulus. Malaysia is also gearing up with a national cloud policy and AI regulations to bolster economic growth amidst factory activity dips caused by global uncertainty. Investors will be eager for upcoming inflation data and policy moves in South Korea, Indonesia, and the Philippines to see how these economies will fare amidst fluctuating global markets.
