Asian FX pressured by strong dollar; ringgit, rupiah lead declines

• Malaysian ringgit at near 6-week low
• Stocks largely down, tracking Wall Street
• Resurgent U.S. dollar hurt Asian FX

Most emerging Asian currencies retreated on Tuesday, with the Indonesian rupiah and the Malaysian ringgit leading declines, pressured by a resurgent U.S. dollar as investors assessed the possible outcome of the U.S. election.

The ringgit <MYR=> fell as much as 0.6% to 4.325 per dollar, its lowest level since Sept. 13, while the rupiah <IDR=> slipped as much as 0.5%.

Indonesia’s new president Prabowo Subianto officially swore in his cabinet on Monday, which included the reappointment of the country’s highly-regarded Finance Minister Sri Mulyani Indrawati.

“There is no better Finance Minister to convince investors that fiscal discipline would be maintained within a new deficit ceiling, with the additional spending room allocated towards productive means,” analysts at Maybank wrote.

The Philippine peso <PHP=> and Taiwanese dollar <TWD=> declined 0.4% and 0.3%, respectively.

Meanwhile, the dollar index <=USD> was last at 103.93 in Asian hours, after hitting its highest level of 104.02 since Aug. 1 on Monday.

Upbeat U.S. economic data and election polls favoring former President Trump have strengthened the dollar, signaling potentially higher interest rates for a longer duration.

As the odds of a Trump victory increase, there are indications that the ‘Trump trade’ has commenced in global financial markets, with negative short-term implications for emerging markets, analysts at BCA Research wrote.

“In short, the U.S. dollar will strengthen, and U.S. bond yields will rise in the lead-up to and after the election if Trump wins. In response, EM countries’ currencies will depreciate, and their fixed-income and equity markets will suffer over the coming months.”

In Asia, interest rates have been the main theme with a slew of central banks announcing their monetary policies in the recent weeks, mostly in line with market expectations.

The Philippine central bank reduced its key interest rate by 25 basis points last week, while Bank Indonesia kept rates unchanged. The Bank of Thailand, however, delivered a surprise 25 bps rate cut, but indicated it was not the beginning of an easing cycle.

Investors are now awaiting the monetary policy statement from Bank Negara Malaysia on Nov. 6 for its outlook on rates.

Stocks in the region were largely down, in line with overnight declines on Wall Street. South Korean stocks <.KS11> dropped about 1.3%, while Thailand’s equities <.SETI> fell 0.4%.

Investors now look ahead to key inflation data from Singapore and Malaysia later in the week.

HIGHLIGHTS:

** China’s youth unemployment rate falls after climbing for two straight months

** Vietnam parliament elects army general as state president

—Reporting by Adwitiya Srivastava in Bengaluru; Editing by Lincoln Feast and Varun H K