Asian currencies: Rupiah skids after surprise rate cut

BENGALURU: Malaysia’s ringgit hit a more than 19-month high on Wednesday, leading gains in largely positive Asian currencies ahead of a likely start to the US Federal Reserve’s easing cycle, while the Indonesian rupiah ticked lower after a surprise rate cut.

The rupiah fell as much as 0.2% to 15,355 per dollar, after Bank Indonesia cut interest rates by a quarter-point just hours ahead of the Fed’s policy decision, underlining its inflation, currency and growth forecasts.

“BI’s (Bank Indonesia) decision is quite brave and indicating that they are quite optimistic on the outlook,” said Fakhrul Fulvian, an economist at Trimegah Securities.

Equities in Jakarta were largely unfazed though, trading flat as of 0752 GMT. Fulvian said the stock market seemed to have already priced in the rate cut since last week.

Radhika Rao, an economist at DBS Bank, said they expect one more rate cut by BI by the year-end.

The Malaysian ringgit rose as much as 0.5% to 4.2330 per dollar and hit its highest since February 2023, continuing its outstanding rally as strong growth fundamentals and expectations of Fed rate cuts have boosted inflows.

The ringgit is “buoyed by expectations of a rapidly narrowing yield differentials with the US and global funds pouring into Malaysian equities and bonds,” said Lloyd Chan, senior currency analyst at MUFG.

Anticipation of a half-point rate cut by the Fed later in the day has risen to 65% from 34% a week ago, according to the CME FedWatch Tool.

With the Fed expected to cut rates by at least 75 basis points this year, the dollar has weakened, giving emerging markets a boost and enhancing their appeal.

Most Asian currencies logged stellar performances in August, with the Philippine peso notching its best monthly gain in roughly 18 years.

However, the market seems to have overpriced a series of Fed rate cuts this year, said Ryota Abe, an economist at Sumitomo Mitsui Banking Corp, further stating that relief will not be “how much” the Fed cuts this time but “how deep” can it cut in this imminent easing cycle.

Abe said a quarter-point rate cut by the Fed will result in the Asian currencies being sold as the dollar may be bought back.

Equities were range-bound. Malaysian shares fell 0.5%, while stocks in Thailand and the Philippines trended lower.

In China, stocks closed higher as trading resumed after the Mid-Autumn Festival holiday.

Markets in South Korea were closed for a public holiday.