Global Market: Emerging Asian currencies rise as softer dollar, rate-hike bets support sentiment

Emerging Asian currencies edged higher against a weaker U.S. dollar on Tuesday as expectations for a Federal Reserve interest-rate hike next month faded, although rising oil prices linked to escalating Middle East tensions limited gains, according to a Reuters report.

The Taiwan dollar strengthened as much as 0.2% to 31.774 per dollar, its strongest level in nearly two months, while the South Korean won climbed 0.5% to a one-week high. The MSCI emerging-market currency index was largely unchanged.

The U.S. dollar remained near a two-month low against major currencies after weaker economic data reduced expectations of a Federal Reserve rate hike in September. Lower expectations for higher U.S. borrowing costs generally support emerging-market currencies by reducing pressure from dollar-denominated assets.


However, rising crude oil prices posed a challenge for the region. Higher oil costs can increase energy import bills and widen current-account deficits in Asian economies that rely heavily on imported fuel, potentially putting pressure on their currencies.

The Malaysian ringgit gained 0.2%, while the Philippine peso slipped 0.3% and was on track for a fourth consecutive session of losses. The Thai baht and Singapore dollar each weakened 0.1%.

Indonesia in Focus Ahead of Bank Indonesia Decision
Investors were also focused on Indonesia ahead of the Bank Indonesia policy decision due on Wednesday. The central bank is widely expected to keep its benchmark interest rate unchanged at 5.75% following last month's surprise decision to pause easing.

Bank Indonesia has also introduced measures aimed at attracting capital inflows and supporting the rupiah as policymakers seek to strengthen financial-market stability.

Indonesian markets have faced pressure this year after MSCI raised concerns about market access and transparency and warned that the country's equities could eventually be downgraded to frontier-market status. Jakarta has since announced reforms, including higher free-float requirements, while MSCI deferred its review until November.

Indonesian stocks rose 1.3% on Tuesday, outperforming most regional markets despite having fallen about 25% this year. The rupiah weakened 0.1%, giving up some ground after gaining nearly 1% over the previous two weeks.

Recent Indonesian market rally reflected a broader reassessment of the country's economic outlook after investors had previously priced in an excessively pessimistic scenario, rather than being driven solely by expectations surrounding Bank Indonesia's policy decision.

Asian Equities Under Pressure
Asian equities remained weaker, with the MSCI emerging Asia equities index falling 0.7% as losses in Taiwan and South Korea weighed on the broader gauge.

Taiwan's benchmark stock index dropped 1%, while South Korea's KOSPI declined 1.1%. Singapore shares fell 1.3% after advancing about 0.8% over the previous two sessions.

Philippine stocks also weakened, losing 0.7%, as investors weighed currency pressures, higher oil prices and the broader risk-off environment.

The combination of a softer dollar and reduced expectations for a near-term Federal Reserve rate hike provided some support for Asian currencies, but concerns over higher energy costs and geopolitical risks remained a key constraint on regional markets.