(Bloomberg) — Asian currencies are set for their worst week in more than a year as traders pare bets on aggressive Federal Reserve interest-rate cuts.
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A Bloomberg gauge of Asian currencies has slumped 0.8% this week, on track for its biggest fall since September 2023. The Malaysian ringgit, Indonesian rupiah and Thai baht lead the losses as resilient US jobs data and geopolitical tensions boost the dollar.
It’s an about-face after last quarter’s rally propelled Asian currencies to be the best performers among emerging peers. The shift comes as traders see a roughly 29% chance of another half-percentage-point cut at the Fed’s next meeting, down from a coin toss a week ago, according to swaps data compiled by Bloomberg.
The dollar weakness was excessive and US non-farm payrolls data due Friday should solidify the view that the Fed’s next move is a 25 basis point cut, according to K2 Asset Management. Southeast Asia will probably give back half to two-thirds of the currencies’ rally from last quarter, said George Boubouras, its head of research in Melbourne.
The ringgit, baht and rupiah have slumped more than 2% each this week, the worst performers among emerging peers. The bearish momentum is likely to continue as rising tensions in the Middle East lift demand for haven assets like the dollar, while concerns grow on the sustainability of a China-linked rally.
“The weakening yuan highlighted uncertainties over China follow-up stimulus after holiday, dragging on EM Asian currencies with bigger China exposure,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank. The ringgit, baht and rupiah “could be more volatile,” he said.
–With assistance from Michael G. Wilson.
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