The Indonesian rupiah and the Thai baht weakened ahead of those countries’ central bank policy decisions on Wednesday, while other regional currencies were largely muted and stock markets mixed as investors braced for an expected US rate cut.
The rupiah fell 0.3% in its sixth consecutive session of losses and has stayed at its lowest level in more than four months.
While domestic factors such as softening economic growth and cooling inflation were conducive to a rate cut, the rupiah’s near 6% drop against the dollar from a September peak is likely to prompt Bank Indonesia (BI) to keep interest rates steady at its policy meeting later in the day.
BI cut interest rates in September, just ahead of the US Federal Reserve, starting its easing cycle, but since then has held its key rate at 6% to prioritize stabilising the rupiah.
Meanwhile, Bank of Thailand (BoT) is also expected to keep its key interest rate unchanged later in the day after a surprise trim in October.
Although, analysts are divided on whether the bank would hold or cut early next year amid concerns around the uncertainty of US President-elect Donald Trump’s proposed policies on trade tariffs and their effect on Southeast Asia’s second-largest economy.
Asian currencies: Indonesian rupiah, Thai baht slip
If BoT unexpectedly cuts policy rates or decides to hold but signals that more cuts are coming, there could be some depreciation pressures on the baht, said Poon Panichpibool, a markets strategist with Krung Thai Bank.
The Thai baht was last down 0.3%.
Elsewhere in the region, the Singapore dollar, Philippine peso and the Malaysian ringgit all traded flat against a broadly stable US dollar.
Equities were broadly mixed with South Korean stocks gaining 0.9%, while those in Indonesia and Singapore retreated 0.4%.
The Fed is widely expected to deliver a 25-basis-point interest rate cut at the end of its two-day policy meeting on Wednesday, but the focus will be on how much further Fed officials think they will reduce rates in 2025.
A slower pace of rate cut would boost the dollar putting further pressure on emerging Asian assets while a faster pace of rate cuts would see Asian FX gain some footing.
“Worst case scenario for EM assets would be the Fed decides to hold the policy rate, upgrades the economic outlook and reduce numbers of rate cuts vs the September Dot plot,” Krung Thai Bank’s Poon said.
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