Emerging Asian currencies are set to post significant monthly declines on Thursday, as tempered Federal Reserve rate cut expectations and some investor bets in the closely contested U.S. presidential election gave the greenback a fillip.
The Singapore dollar has weakened about 2.8% in October in its biggest monthly drop since 2016, while the Indonesian rupiah's nearly 4% monthly drop is its worst since March 2020. Both currencies were trading largely flat, as of 0646 GMT.
The Malaysian ringgit, which was not trading on Thursday due to a public holiday, was the worst monthly performer in Asia with a 5.9% drop in October. The ringgit, however, still remains the best performer on a year-to-date basis.
The dollar took a breather on Thursday, but was set for its highest monthly gain in more than two years, exerting downward pressure on regional currencies as investors pare back expectations of a large rate cut by the Fed. Traders anticipate a 25-basis-point rate cut in the Fed's meeting next week.
The greenback was also buoyed by some investors putting on trades betting Republican candidate Donald Trump will win the U.S. presidency, although opinion polls show he is still tied in a neck-and-neck race with Vice President Kamala Harris.
Barclays analysts said the pressure on Asian asset markets may increase on a Trump win, with the largest forex drop occurring in the South Korean won, the Thai baht and the Chinese yuan. The analysts, however, suggested that China stimulus could mitigate some of the impact from tariffs if Trump were to win.
"The impact of a larger stimulus package could also be significant from a portfolio channel perspective, as it could drive stronger investment inflows into China."
"Most EM currencies would benefit from an improvement in the China impulse factor. In Asia, the winners are THB, KRW and SGD, which tallies with trade/tourism linkages," they said.
The baht was last flat at 33.750 per dollar, but set for a near 4% monthly drop, its biggest since February 2023.
Regional stock markets were largely mixed on Thursday. Shares in Seoul fell 1.5%, pulled down by the semiconductor sector after Samsung Electronics reported weak earnings, and those in Manila dropped 1%. Bangkok equities rose nearly 1%. Thailand's finance ministry said Southeast Asia's second-largest economy is expected to grow 3% in 2025.
Investors are now monitoring U.S. nonfarm payrolls data due on Friday, ahead of the presidential election on Nov. 5.
HIGHLIGHTS:
** BOJ keeps rates steady, puts focus on global risks
** Taiwan shuts down for arrival of strong Typhoon Kong-rey - Reuters
