The US Dollar (USD) weakened across the board in overnight markets due to reduced expectations of a Federal Reserve rate cut. Asian currencies saw the most significant gains, with the THB, KRW, MYR, and PHP appreciating over 1% against the USD. The IDR and TWD also posted substantial gains of 0.9% and 0.8%, respectively, according to DBS FX strategist Philip Wee.
Asian Currencies Rebound to Recover Year’s Losses
The rebound of Asian currencies is seen as a recovery from losses earlier in the year when the Fed hinted at maintaining higher rates. The MYR has emerged as the top performer, appreciating by 5.1% year-to-date, a significant turnaround from a 4% loss in April. The SGD has also strengthened by 1.3% year-to-date, reversing a 3% loss by the end of April.
While the THB has remained flat for the year, it has erased the 7-8% year-to-date loss from the first four months. The outlook for Asian currencies is positive, supported by the recovery of major currencies like JPY and CNY, strong economic growth in many Asian economies, and the absence of expectations for central banks to follow the Fed’s rate cuts in the next two years.
There is potential for the KRW, PHP, and IDR to catch up in recovering losses from this year.
Analysis:
The weakening of the US Dollar against Asian currencies due to reduced Fed rate cut expectations presents an opportunity for investors. Asian currencies have rebounded to recover losses from earlier in the year, with the MYR and SGD leading the pack. This trend is supported by strong economic growth in the region and the divergence in central bank policies between Asian countries and the Fed. Investors should monitor these developments closely for potential investment opportunities in Asian currencies.