As of October 28, 2024, the Indonesian rupiah and Malaysian ringgit have experienced significant declines, with the rupiah falling 0.6% to its lowest level since mid-August, while the ringgit dropped 0.5%, marking its lowest point since early September [5e063e83]. This downturn is attributed to strong U.S. economic data that has diminished expectations for Federal Reserve rate cuts, resulting in a rise in the dollar, which is poised for its sharpest monthly increase in approximately 2.5 years [5e063e83].
The dollar index recently reached 103.93, the highest level since August 1, driven by positive U.S. economic indicators and election polls favoring Donald Trump, which analysts predict could further strengthen the dollar and lead to depreciation of emerging market currencies [823fa522]. The Indonesian rupiah is on track for its biggest monthly fall since March 2020, while the Malaysian ringgit is expected to log its worst monthly performance since late 2016 [5e063e83].
Recent analysis by the global broker Octa highlights that 88% of foreign exchange transactions involve the dollar, which constitutes 59% of global foreign currency reserves. This dominance means that fluctuations in the dollar significantly affect commodity prices, interest rates, and trade balances across the region [f3a12304].
In response to these developments, the South Korean won has shown resilience despite the Bank of Korea's recent decision to cut rates by 25 basis points to 3.25%, marking its first cut in over four years [a5de68e0]. Meanwhile, the Philippine central bank also cut interest rates by 25 basis points last week, while Bank Indonesia opted to keep rates unchanged [823fa522]. The Bank of Thailand surprised markets with a 25 basis point cut, reflecting the varied responses of regional central banks to the current economic climate.
As traders anticipate upcoming U.S. employment data on October 31, they must closely monitor U.S. interest rates and inflation data to predict currency movements, as emphasized by Octa's Kar Yong Ang [f3a12304]. The interplay between U.S. monetary policy and emerging market dynamics remains critical for investors navigating this volatile environment [e74526f1].