The epic rally that drove the US dollar to its best performance in almost a decade is taking a breather. For policymakers in Asia, who were pushed into making uncomfortable choices last year as their currencies swooned, the challenge is to use the respite wisely.
It is not that the greenback is necessarily headed for a rough year; it is only March and 12 months ago many strategists were mistakenly bearish. Nor is it remotely time for an obituary, however much US President Donald Trump might be trying to reshape the economics and politics of the era.
The US hegemon is entrenched in global commerce, but signs of a slowdown are offering some hiatus and that is welcome. The yen is clawing its way back from its lowest level in more than a generation and the South Korean won’s slide has abated. The Malaysian ringgit and Thai baht have steadied after a difficult patch. The rupiah has strengthened after falling toward 16,600 per dollar.
Growth in most of these economies could use a lift and inflation has retreated to the comfort zone of central banks, but the cycle of interest-rate cuts in Southeast Asia has been a tepid one. Officials have proceeded carefully, wary of letting exchange rates weaken too much. In the back of their minds has been concern that the US Federal Reserve would go slow on the couple of rate reductions penciled in for this year — or possibly even resume hiking. As much as they profess to abhor uncertainty, the White House’s on-again-off-again tariffs are presenting Asia with a gift. Officials have previously been torn between juicing growth and supporting their currencies.
Export-dependent economies do stand to suffer from a global trade war. An all-out conflict would have many losers and nations that rose to prosperity on the back of supply chains would certainly suffer, but that is not quite what we have right now. The whiplash from Washington’s moves to impose, and then suspend, levies on neighboring economies — coupled with the possibility of steep cuts in government spending — has dented investor confidence.
The NASDAQ 100 on Monday had its worst day since 2022 and US Treasuries, usually seen as a haven in times of tumult, rallied. Recession in the US, considered only a dim prospect a few months ago, is now the concern of the hour. The Bloomberg Dollar Spot Index is roughly back to its levels in October last year after a sharp climb following the US presidential election the following month.
Indonesia, where fluctuations in the currency play a huge role in shaping policy, is a good place to start. The president wants dramatically faster growth and inflation is receding, but Bank Indonesia has trodden carefully. Bank Indonesia Governor Perry Warjiyo surprised with a cut in January, but balked last month.
“Stability is the most important thing for our economy,” Warjiyo told reporters. “That’s why we continue to be in the market and maintain the stability of the rupiah, especially when global turmoil is high.”
One economy that punches below its weight is the Philippines. Yet even there, the case for a bit more courage is strong. In a Feb. 24 report titled Letting the Fed Go, HSBC Holdings PLC encouraged the Bangko Sentral ng Pilipinas to a be a bit bolder. It would not hurt the authority, which has already trimmed rates in the past year, to let the peso depreciate, economists at HSBC Holdings wrote.
Officials could do with being less defensive; they have intervened to stop the peso crashing through US$0.59. There is no suggestion that the Philippines is getting negative reviews — or any at all — from the new US administration. And manufacturing, a weak spot compared with the dominance of factories in Malaysia and Thailand, might become more competitive if the peso drops.
Stability is a good thing and something that appears to have deserted Washington. In much of Asia, memories of the financial crisis of 1997 to 1998 are still vivid. Exchange rates float more freely now; efforts to prop them up artificially are passe. That does not mean officials are absent from the market altogether and foreign exchange is a big factor when they consider rates.
Monetary guardians are a cautious breed, understandably. Trump has opened a door to shore up growth. All they need to do is walk through.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor for economics at Bloomberg News. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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