As market expectations for a Federal Reserve rate cut diminish, the US dollar is experiencing a surge, potentially bringing new challenges to Asian currencies. Analysts note that the Korean won, the Malaysian ringgit, and the Indonesian rupiah are particularly sensitive, facing depreciation pressures.
A recent report by Goldman Sachs analysts highlights that the trajectory of the US dollar is playing a dominant role in influencing Asian currencies. Even though there's been a revival in Asian economic growth rates, the Federal Reserve's policy path remains a major factor. The shift from the start of the year in expectations for Fed rate cuts is likely to further drive the US dollar up, increasing the depreciation risk for the Korean won, the Malaysian ringgit, and the Indonesian rupiah.
A stronger US dollar not only impacts the currencies of major Asian economies but also poses a test for the smaller currencies of ASEAN countries. The head of FX and emerging markets macro strategy at Barclays Bank stated that the strong dollar and expectations of high interest rates have reduced investor interest in emerging market assets, leading to depreciation pressures on emerging market currencies.
In response, central banks across Asia are acting cautiously. Goldman Sachs expects that central banks in Indonesia and the Philippines will take proactive measures to defend their currencies, while export-oriented economies are more likely to accept currency weakness.
However, the actions taken by central banks also carry certain risks, requiring caution. A report released by the International Monetary Fund shows that a strong US dollar will lead to capital outflows, higher import prices, and tighter financial conditions, posing negative impacts on the economy.
Today, the South Korean Ministry of Finance stated that it would closely monitor the trend of the Korean won and could take corresponding actions. The Governor of the Bank of Korea also mentioned that measures to stabilize the currency would be taken as necessary to maintain exchange rate stability. Central banks across Asia will closely watch the Federal Reserve's policy directions and decide on their future monetary policies accordingly.
