What’s going on here?
The South Korean won took a dive, marking its worst day in a week by falling as much as 0.5% against the US dollar, while the Malaysian ringgit shone brightly, gaining 0.7%.
What does this mean?
Emerging Asian currencies saw mixed fortunes. The won’s slide to 1,377.20 against the dollar reflects market worries about South Korea’s rising inflation, which exceeded expectations in July due to supply-side pressures. This development raises questions about the Bank of Korea’s ability to cut interest rates soon. Conversely, the ringgit’s 0.7% gain builds on a strong performance, reaching near its one-year high and standing out as the only Asian currency with a 1.2% gain year-to-date. The Thai baht also inched up by 0.2%, while other regional currencies traded flat or slightly lower.
Why should I care?
For markets: Emerging markets feel the strain.
Investor sentiment has been rocked globally due to a weak US manufacturing report and the Federal Reserve signaling a potential end to its restrictive policy. This has led many to take profits from the recent US market rally, which in turn has hit tech-heavy markets in Taipei and Seoul hard, causing indexes to fall over 3%. Shares in Bangkok, Singapore, Manila, and Kuala Lumpur have also slipped up to 1.4%.
The bigger picture: Regional winds of change.
The broader implications of these currency movements are significant. The MSCI International All Asia Pacific Index, including Japan, slumped by more than 3%, highlighting widespread regional challenges. Japan’s Nikkei also dropped nearly 5% as a stronger yen compounded market woes. While Southeast Asian markets grapple with economic uncertainties, Indonesian regulators are closely monitoring geopolitical risks, and OCBC has reported better-than-expected Q2 profits, indicating a mix of resilience and vulnerability across the region.
