What’s going on here?
Asian currencies hit a rough patch as both the Indonesian rupiah and Malaysian ringgit dropped to multi-week lows. Strong US economic data has lowered hopes for Federal Reserve rate cuts, affecting the attraction of emerging markets’ currencies.
What does this mean?
The fall of the rupiah to its lowest since mid-August and the ringgit’s drop to early September levels highlight major market changes. These currencies are set for their worst monthly performances since 2020 and 2016, respectively. The strengthening US dollar, buoyed by fading expectations for a Fed rate cut, is drawing investors to US assets and away from emerging markets. CME’s FedWatch points to slim chances of a 50-basis point cut in November, adding pressure to these currencies. Broader commodity market issues, with Malaysian palm oil and oil prices falling, further reflect these economic shifts. Meanwhile, Indonesian stocks hit their lowest in weeks, emphasizing regional market volatility.
Why should I care?
For markets: Navigating the waters of uncertainty.
As Asian currencies slip, the strength of US assets grows. MUFG cautions that factors like Chinese stimulus and semiconductor advancements could alter this scenario. Meanwhile, Malaysia’s central bank halting FX buffer replenishment signals ongoing currency challenges amid geopolitical risks tied to the US elections. Key data releases, including US employment figures and economic indicators from Hong Kong, Taiwan, and Indonesia, are pivotal for investors charting their course.
The bigger picture: Global economic shifts on the horizon.
Japan’s political scene evolves post-election, while China’s new lending tool seeks to support its economy as year-end loan expirations approach. These events might shape global market dynamics, particularly if China’s economic measures kindle broader regional growth. Emerging markets feel the impact of these changes, highlighting the global economy’s interconnectedness in this unpredictable period.
