Asian Currencies Weaken as Focus Turns to Global Policy

Asian currencies weakened on Thursday as the dollar strengthened, with investors turning their attention back to the U.S. and global monetary tightening campaign as the global financial crisis eases.

The Thai Baht (USDTHB) was the worst-hit currency, down 0.4% after rising for two consecutive days. This came after the Bank of Thailand (BoT) raised its interest rate by 25 basis points for the fifth consecutive day on Wednesday. However, the Thai Baht is still on track to see a monthly gain of more than 2.5% in March. According to analysts at MIDF Amanah Investment Bank, there is less pressure on the Bank of Thailand to intervene further through monetary policy to bring down inflation. In addition, a gradual shift in the US Federal Reserve’s interest rate path will ease external pressure on the Baht and the Bank of Thailand’s monetary path. On the other hand, data from the Ministry of Commerce showed that Thailand’s exports based on customs contracted for the fifth consecutive month in February, falling by 4.7% from a year earlier.

The Singapore dollar and the Philippine peso and South Korea fell between 0.1% and 0.2%. Currency markets were directionless for the week, with some quarterly or monthly flows and ahead of U.S. economic data. Traders are looking ahead to February’s U.S. PCE data, the Fed’s preferred inflation gauge, for further insight into the outlook for the dollar and interest rates. Malaysia’s central bank, Bank Negara Malaysia, has kept interest rates unchanged at its last two meetings, but on Wednesday it indicated a rate hike is likely in the future as inflation is expected to remain high throughout the year.

The decision was based on the fact that inflation in Malaysia increased to 4.5% in February 2023, from 4.1% in January 2023, driven by rising food and beverage prices and transportation costs. Although Bank Negara Malaysia expects inflation to moderate, this high inflation rate remains a concern for the central bank, and raising interest rates is one of the solutions to control inflation. However, the decision to raise the benchmark interest rate is not always easy, as an interest rate hike can have an impact on economic growth. Therefore, Bank Negara Malaysia is likely to consider carefully before they make a decision to raise the benchmark interest rate. The statement stated that the Malaysian Ringgit (MYR) exchange rate against the US Dollar (USD) fell by 0.1%, but is expected to increase by 1.4% during March.

This is due to the expected strong economic growth in Malaysia, but also the risk of higher inflation. According to analysts at United Overseas Bank, due to the expected strong economic growth and higher inflation risk, interest rates are expected to rise by 25 basis points for the next policy meeting to be held in May. In Indonesia, Perry Warjiyo, Governor of Bank Indonesia said that the Indonesian economy is expected to grow between 5.1% and 5.2% this year, supported by domestic consumption and investment. The IDR against the US Dollar (USD) was stable during the session and is expected to experience a marginal increase during March.

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