Asian currencies faltered on Tuesday, with the Thai baht and Philippine peso leading the decline, as the U.S. dollar held firm near a two-month peak and investors grew cautious ahead of a slew of key monetary policy decisions due later this week.
The baht shed as much as 0.9%, as of 0609 GMT, and was on track for its worst session since Oct. 7. The peso slid 0.5% to hit a more than two-month low, while Malaysia's ringgit weakened as much as 0.5% to touch its lowest since Sept. 13.
The dollar index, which gauges the greenback against a basket of six major currencies, hovered just below Monday's peak of 103.36, the highest since Aug. 8, as expectation that the Federal Reserve will implement only modest interest rate cuts in the coming months grew further.
However, Philip Wee, a senior FX Strategist at DBS, said the greenback's appeal should wane from improving risk appetite. Investors in the region waited for monetary policy decisions on Wednesday from central banks in Thailand, the Philippines, and Indonesia.
"We expect further easing over the coming quarters from BI (Bank Indonesia), but the pace and extent of this may be tempered by occasional bouts of IDR weakness," analysts at ING said in a note, adding that market concerns over the country's budget and spending plans might lead to further volatility.
The Indonesian central bank is widely expected to keep rates unchanged on Wednesday, a Reuters poll found. The rupiah traded flat on Wednesday, while stocks in Southeast Asia's largest economy rose 0.6%, hitting their highest since Oct. 1 and heading for a third consecutive session of gains.
The Philippine central bank, which lowered its interest rate in August for the first time in nearly four years, is expected to deliver two more cuts this quarter, a Reuters poll showed.
"The central bank cut rates by 25 bps back in August, front-running the Fed. And despite the PHP's recent weakness, it is forecast to cut again in October by 25 bps, matching the Fed's easing overall so far," ING analysts said.
Analysts at Maybank expect the Bank of Thailand to maintain a status quo "given the adamancy of the governor to continue to state that policy settings are neutral."
Among Asian stock markets, Bangkok and Kuala Lumpur traded flat, while Seoul inched up 0.3% and Manila added 1.9%.
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