Asian forex weakens as hawkish Fed propels dollar; shares rise

BENGALURU (Sept 17): Currencies in emerging Asia fell to multi-week lows on Thursday after the US Federal Reserve’s (Fed) first rate hike in more than three years and hawkish tone sent the US dollar to a seven-week high, while regional stocks made gains.

MSCI’s gauge of emerging-market currencies fell as much as 0.3% to its lowest level since Aug 21, extending declines to a sixth consecutive session.

The US central bank’s rake hike and hawkish guidance strengthened the dollar to a seven-week high and pushed US yields higher, putting pressure on the regional currencies.

Traders are repricing the interest rate differential story, and the path of least resistance for emerging-market Asian foreign exchange right now is weaker, said Inki Cho, a senior financial market strategist at online trading platform Exness, describing the moves as “orderly but cautious”.

“Position-squaring ahead of the weekend is amplifying the moves, but this isn’t panic selling.”

Currencies in Indonesia, South Korea and Malaysia declined the most, with the ringgit weakening by as much as 0.4% to 4.098 a dollar, its lowest level since June 26.

The rupiah declined 0.5% to its lowest in two weeks at 17,765 against the greenback, and the won dropped to a three-week low of 1,384.40 per dollar.

Regional stocks, however, gained. The MSCI emerging-market Asian equities index rose as much as 0.8%, accruing most of the gains from South Korean and Taiwan stocks, which dominate the index.

South Korea’s Kospi and Taiwan’s main stock index advanced as much as 1.2% and 2.2% respectively, riding the artificial intelligence (AI) wave and unperturbed by rising rates.

Investors are looking beyond the higher-rate environment and still focusing on the strong outlook for AI-related earnings which is positive for Taiwan and South Korea given their semiconductor exposure, said Lukman Leong, the chief analyst of Doo Financial Futures, a brokerage.

Equities in Jakarta and Manila boosted gains on the emerging-market gauge by adding as much as 1% each. Thailand stocks also climbed 1%.

Leong noted that stocks in Indonesia and the Philippines are supported by domestic demand and earnings.

Stocks in Malaysia extended their decline to a second session after returning to trade after a public holiday that kept markets closed.

Southeast Asia’s largest budget carrier AirAsia Group Bhd (KL:AAGB) tumbled as much as 20.3% to its lowest level since Dec 28, 2022. The steep losses came after Reuters, citing sources, reported on Wednesday that the Malaysian government was in talks with rivals about them absorbing AirAsia’s market share as authorities try to revive the airline’s financial health.

Investors are now focussing on Bank of Japan, which is expected to raise interest rates to a 31-year high on Friday and signal its readiness to keep pushing up borrowing costs.