BENGALURU: Asian emerging market currencies bore the brunt of a strong dollar on Tuesday, with most trading at multi-month lows as the greenback touched fresh highs on expectations the Federal Reserve would keep US interest rates elevated for longer.
Equities in the region were mixed. Shares in the benchmark indices in Malaysia and Indonesia were 0.2% and 0.1% higher respectively, while equities in Thailand declined 1.5% to their lowest level since January 2021, weighed by the energy and industrials sectors.
The Thai baht and the Malaysian ringgit were trading at their lowest levels since early November last year. The Singapore dollar was at its weakest level since Nov. 30, 2022 while the Indonesian rupiah slumped to its lowest since Jan. 6.
The Thai baht weakened up to 0.6% to hit 37.140, weighed by concerns of a widening fiscal deficit due to higher spending, along with a recent surge in oil prices.
The baht is among the worst performing currencies in the region with currency losing nearly 7% of its value so far this year.
Analysts at Maybank believe the concerns over higher government spending have been priced into the currency.
They expect the dollar-baht pair to “maintain a flattish elevated profile” over the next two quarters as the greenback remains strong on a positive US economic performance and the Fed’s elevated interest rates.
“We expect a discernible downward move in the pair from 2Q 2024 onwards as speculation emerges of a Fed cut of which it should eventually materialize from 3Q 2024 onwards,” the analysts added.
Indonesia’s rupiah retreated 0.5% to hit 15,610.00 per dollar. The country’s 10-year benchmark yields touched near a seven-month high, adding 2.5 basis points to 6.996% as surging US treasury yields pressured local bonds.
“In trade weighted terms, the IDR is still relatively firm and we expect some cheapening over coming weeks, with some catch up to the declines in other Asian FX over the past few months,” analysts at Barclays said of the rupiah.
“We think the Bank Indonesia will take a more active stance to lean against any outsized IDR cheapening, especially if the pace and magnitude exceeds broader USD-Asia moves.”
Elsewhere, the Malaysian ringgit and the Philippine peso weakened by as much as 0.3%, while the South Korean won slid up to 0.5% to hit its lowest level since Nov. 22, 2022. Equities in Seoul edged 0.1% higher.
The Singapore dollar and the Indian rupee were down 0.2% each, with shares in Singapore declining 0.8%.
Investors in Asia are this week awaiting inflation data from Thailand, Philippines and South Korea as well as the monetary policy decision from the Reserve Bank of India.