Malaysia's ringgit was on a tear on Thursday among emerging Asian currencies, while share markets rose, with investors cheering a possible end to the U.S. Federal Reserve's restrictive policy settings in September.
Malaysia's currency advanced as much as 1% to trade at 4.545 per dollar, its highest in a year.
Others such as the Taiwan dollar and the South Korean won traded up to 0.3% higher, while the Thai baht was flat, reversing earlier gains.
A period of political stability and the need for global companies to diversify their supply chains beyond China has put Malaysia in the limelight.
"The ringgit is probably performing catch-up because it was one of most underperforming currencies recently, and it has been undervalued for a long time," said Chief FX Strategist Saktiandi Supaat at Maybank.
The Federal Reserve held interest rates steady overnight but kept the doors open for a cut in September, provided the U.S. economy "follows its expected path".
The MSCI International Emerging Markets Currency Index rose as much as 0.3%, hitting its highest since mid-July and up for a third straight session.
Analysts now expect Asian central banks to start easing policy stances in the near-term as inflation is set to remain low.
The Philippines is likely to kick off the rate-cutting cycle, followed by South Korea, India and Taiwan.
"We think the central bank in the Philippines will be the next to loosen policy and have pencilled in an August cut," analysts from Capital Economics wrote.
"Overall, we expect most central banks to cut rates by 50bps-200bps between now and the end of next year," they said.
In Indonesia, July inflation eased to its lowest since February 2022, prompting the rupiah to edge as much as 0.3% higher.
Investors await South Korean inflation data on Friday to get a sense of where interest rates could be headed.
Among Asian equities, shares in Taipei closed 2% higher, riding the artificial intelligence boom caused by chip giant Nvidia.
Taiwan Semiconductor Manufacturing, Asia's most valuable stock, ended 2.8% higher.
Other bourses in Bangkok, Manila, Seoul and Jakarta rose between 0.5% and 0.8%.
HIGHLIGHTS:
** Bank of Korea says it will monitor financial markets more closely
** Chinese factories poised for "cruel summer" as PMI surveys raise outlook risks
** India's factory activity maintains solid growth in July, PMI shows - Reuters
