Thai Baht and Indonesian Rupiah Plummet as US Dollar Surges, Spurring Asian Currency Losses

Thai Baht and Indonesian Rupiah Plummet as US Dollar Surges, Spurring Asian Currency Losses

The Thai baht and Indonesian rupiah have been significantly impacted by the surging strength of the US dollar, leading to significant losses among Asian currencies. On Tuesday, the baht depreciated by as much as 0.8%, reaching its lowest level since November 2022. Simultaneously, the rupiah weakened by up to 0.6%, hitting an eight-month low. The driving force behind the strength of the US dollar includes signs of economic resilience and hawkish Federal Reserve rhetoric, which has pushed US bond yields to 16-year highs.

Investor Sentiment and Economic Factors

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Investor sentiment towards the baht is being impacted by ongoing fund outflows. These outflows are driven by wider interest rate differences between countries and a recent increase in oil prices, which could drive inflation in Thailand, a net oil importer. Economists predict that the Bank of Thailand will maintain its key policy interest rate at 2.25%.

Concurrently, Indonesia’s central bank has been intervening in the foreign exchange market to balance supply and demand, according to senior official Edi Susianto. However, concerns about fiscal damage resulting from higher government spending to stimulate the underperforming economy are also affecting investor confidence.

Other Asian Currencies Also Hit

The Singapore dollar depreciated by 0.2% following data that showed the city-state’s industrial output has contracted for the 11th consecutive month. The US dollar index reached its highest level since November 2022, driven by hawkish Federal Reserve rhetoric and a budget deficit to be financed by borrowing.

Other Asian currencies, including the South Korean won, the Malaysian ringgit, and the Philippine peso, also depreciated. Analysts have noted the challenging situation for Asian rates currently, given the strength of the dollar and Asian central banks generally lagging behind their emerging market counterparts in hiking rates.

Thailand’s Attempt to Curb Currency Swings

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Thailand is planning to promote the use of yuan and other Asian currencies in trade and investments to curb wild swings in the baht against the US dollar, according to a central bank official. The Bank of Thailand (BOT) expects greater use of regional currencies to help reduce exchange risk as they often move in tandem with the baht. BOT has been working with its counterparts from China, Malaysia, and Indonesia to promote local currencies in their countries, expecting more progress in the second half of the year.

The Global Shift Away from the Dollar

Thailand’s move comes amid a growing backlash against the hegemony of the US dollar across the globe. Countries like China have signed numerous deals to boost trade in the yuan, India is promoting the rupee, and countries from Brazil to Argentina are actively seeking alternatives to the dollar. This shift is a response to the strength of the dollar, which has weakened local currencies and become a tool of economic statecraft.