[SINGAPORE] Fresh capital is piling into select Asian currencies – from the New Taiwan dollar and Singapore dollar to the Malaysian ringgit – on the back of rate-cut bets, a persistently weak greenback and supportive domestic conditions, while India’s rupee has slipped amid fraying India-US ties.
At the forefront of Asian gains against the greenback is the New Taiwan dollar, which has rallied 8.3 per cent year to date as at Tuesday (Aug 19), albeit down from the 12 per cent surge it posted in July. Its latest advance places it alongside the Singapore dollar and the ringgit.
The safe-haven Singapore currency has outperformed South-east Asian peers with a 6 per cent climb against the US dollar since end-2024. It is followed by the high-beta ringgit that has gained more than 5 per cent to around 4.2 to the US dollar from 4.5 in end-2024.
Sumitomo Mitsui Banking Corporation (SMBC) economist Ryota Abe expects investment flows to shift towards Thailand, South Korea and Japan, which he sees emerging as the next key destinations.
Foreign investors have been flocking to Thai and South Korean bond markets on rate-cut expectations, driving net inflows in recent months.
Meanwhile, the rupee surrendered all its gains for the year following sharp depreciations against the US dollar that necessitated central bank intervention. The volatility comes with US President Donald Trump’s threat to hike tariffs on Indian exports to 50 per cent.
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Julius Baer’s fixed-income analyst for Asia, Magdalene Teo, said that this would hurt India’s export competitiveness, with street estimates pegging the damage on the gross domestic product growth of the world’s fourth-largest economy at around 0.6 to 0.9 percentage point.
And, with a 50 per cent tariff sustained, the rupee could be well above the 89 handle with further underperformance against its Asian and Group of 10 currency peers, said MUFG Bank senior currency analyst Michael Wan.
That said, domestic reforms such as recently announced ones on India’s goods and services tax could offset the bite from US tariffs and boost the country’s long-term growth potential, he added.
The greenback has been weighed down by bearish sentiments owing to inflation fears, ballooning debt, trade policy uncertainties and friction between Washington and the Federal Reserve chair, to name a few.
The currency notched its worst first-half slump in more than five decades of 10.7 per cent. The US dollar index has since pared some losses, but is still nursing a more than 9 per cent slide year to date.
Baht: High risk, high reward?
Thailand’s bond market in April charted its highest monthly inflow of about US$2 billion in some two years, though the figure has since moderated and its stock market remains subdued.
SMBC’s Abe said: “If Thailand’s economy revives after several rate cuts, we can hope Thai stocks – which have been far behind other peers – will be rising and this volatility will provide chances for investors to invest in the baht.”
But Maybank’s head of foreign exchange research, Saktiandi Supaat, cautioned that weak fundamentals in the kingdom’s economy and financial sector could constrain gains.
He told The Business Times: “Although the baht remains a well-supported emerging market currency over riskier alternatives in Asia, recent policy easing limits the baht’s immediate upside, even if sentiment remains somewhat positive.”
While the house remains neutral to slightly bullish on the baht against a softening US dollar, the Thai currency is not a definitive favourite among its regional counterparts, said the economist.
“Aside from the subdued real economy, falling credit demand and worsening credit quality have cast a pall over the Thai financial sector,” he added.
Official data released on Monday revealed that the kingdom’s real GDP growth slowed to 2.8 per cent year on year in the second quarter of 2025, down from an upwardly revised 3.2 per cent the previous quarter.
Analysts from Moody’s Ratings expect Thailand’s growth potential to weaken further as limited progress on long-term reforms, domestic political uncertainty and heightened global trade instability compound deep-rooted structural issues.
Alongside faltering growth prospects, Thailand’s fiscal outlook is expected to deteriorate, said the analysts in an Aug 14 report.
Won, yen: Steady as they go
South Korea’s bond market marked in May its largest monthly inflow of a net 11.34 trillion won (S$10.5 billion) of listed bonds since 1998, Bloomberg data indicated, extending April’s bumper haul.
The figure has since softened, but Abe expects South Korea’s corporate value-up programme, which aims to boost stock-market returns and broaden the appeal of its equities, to invite more inflows, increasing demand for the won.
He also flagged Japan as a potential next destination amid the current uncertain environment.
He told BT that investors’ risk appetite for Japanese government bonds is increasing with rising yields, which, considering a basis swap, are lucrative for foreign investors holding US dollars.
Both the won and the yen have gained some 6 per cent in the year to date against the US dollar, recouping their losses from the previous year.
Asean FX: Domestic support sates investors
South-east Asian currencies continue to rally, with the ringgit remaining a top performer among its peers and the rupiah expected to gain on strengthening domestic fundamentals.
Maybank’s Saktiandi noted that measures by Indonesia’s central bank to stabilise the rupiah and its foreign exchange reserves continue to provide a strong buffer for external resilience and support macroeconomic and financial system stability.
“Bank Indonesia’s initiatives to stimulate bank lending have also begun to show results as reflected in the pace of decline in deposits held – early signs of improved credit distribution,” he said.
Yet, despite the house’s positive outlook on the rupiah, Saktiandi cautioned that gains are still expected to be limited given that investor sentiment towards the currency would take time to strengthen.
Tariffs lose bite
Amid all the different factors that come into play, rate-cut expectations have returned as the dominant driver for markets, said DBS senior foreign exchange strategist Philip Wee.
“The frequency of Trump’s tariff threats since June has reduced their shock value, while markets have become desensitised to what they consider long-running political risks in Ukraine and Gaza, where the conflicts only matter if they are seen materially altering global and inflation prospects,” he said.
Instead, the house will be paying more attention to the Federal Reserve’s Jackson Hole Economic Symposium later this week.
“Investors will be weighing how market pricing for Fed cuts aligns with (internal divisions) between (Fed chair Jerome) Powell’s camp urging caution over tariff-driven inflation and Trump-aligned voices pressing for faster easing,” said Wee.
