The Indonesian rupiah and Malaysian ringgit weakened towards three-week lows on Monday while equities in emerging Asian economies fell to their lowest since August, after a robust US employment report intensified fears of prolonged high interest rates.
An MSCI index of emerging market currencies fell marginally and was last circling its late-July levels. Both the rupiah and the ringgit fell around 0.6%, pinned close to their weakest since mid-December.
Equities also came under pressure at the start of the week. Stocks in Thailand and Malaysia slipped 1% each, while those in the Philippines declined 1.4%.
An MSCI gauge of Asian emerging market equities dipped more than 1% to its lowest since early August, dragged down largely by stocks in Taiwan and South Korea, which lost 1.7% and 1%, respectively.
Equities of the two East Asian economies hold an aggregate 35% weight in the MSCI gauge.
A strong US jobs report late on Friday left traders heavily scaling back their expectations for Federal Reserve cuts this year. “Given a resilient labour market, we now think the Fed cutting cycle is over,” said Bank of America’s senior US economist, Aditya Bhave.
“Our base case has the Fed on an extended hold. But we think the risks for the next move are skewed toward a hike.”
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That sentiment pushed the greenback to its highest in more than two years and the 10-year US Treasury yield to a 14-month high.
In Indonesia, the central bank entered the foreign exchange market on Monday, saying it aimed to safeguard the rupiah’s stability and secure market confidence, while attributing the currency’s depreciation to external factors related to US economic data.
Bank Indonesia is set to meet later this week - the first time this year - after it held rates steady in its last three meetings, contrary to the two rate cuts expected after it embarked on its easing cycle in mid-September last year.
But strong US economic data has smoothed out the curve on the Fed’s rate-cut trajectory, triggering the dollar’s upward trend and putting pressure on the rupiah. That, combined with uncertainty around possible moves on tariffs by US President-elect Donald Trump, has prompted Bank Indonesia to stay put.
“BI will struggle to find the respite on the currency front needed to resume policy rate cuts this year,” analysts at Barclays wrote. They have pushed their view of two quarter-point rate cuts for this year to 2026.
In South Korea, the won was largely flat at 1,471.6 per dollar, while Taiwan’s dollar slipped 0.5%. Singapore’s dollar, Thailand’s baht and Malaysia’s ringgit weakened slightly.
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