Fed cut expectations drove the US Dollar (USD) weaker across the board in overnight markets. Asian currencies performed best, led by the THB, KRW, MYR, and PHP, which appreciated more than 1% against the USD. Single-day gains in the IDR and TWD were also substantial at 0.9% and 0.8%, respectively, DBS FX strategist Philip Wee notes.
“We view the Asian currency rebound as a recovery of the losses from the Fed’s ‘high for longer’ rates stance in the first half of this year. The MYR has become the strongest currency this year, appreciating by 5.1% ytd, a far cry from the 4% ytd loss in April. The SGD is the other currency that managed to appreciate for the year, by 1.3% ytd, sharply reversing the 3% ytd loss by the end of April.”
“While the THB is flat for the year, it did wipe out the 7-8% ytd loss in the first four months. The outlook for Asian currencies is supported by the recovery in the region’s largest currencies (JPY and CNY), many Asian economies reporting stronger-than-expected growth lately amid US growth worries, and no expectations for their central banks to match the Fed cut cycle over the next two years.”
“There is scope for the KRW, PHP, IDR to play catch up in recovering this year’s losses.”
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