This year, the outstanding performance of Southeast Asian currencies has risen to the "overbought" stage and may face a short-term pullback

According to the financial news app Zhitong Finance, the continuous strong rebound trend of Southeast Asian currencies against the US dollar since the beginning of this year may temporarily lose momentum. This could be due to the fading enthusiasm of foreign exchange traders for the speculation on the Federal Reserve's upcoming dovish interest rate policy shift, at least according to a closely watched technical momentum indicator. Since the beginning of this year, Southeast Asian currencies, including the Malaysian Ringgit, Thai Baht, Indonesian Rupiah, Singapore Dollar, and Philippine Peso against the US dollar, have performed exceptionally well. Especially since the second half of the year, driven by expectations of interest rate cuts, anticipation of a soft landing in the US economy, and the growth trend in Southeast Asian economies, the exchange rates have led global currencies.

Technical indicator data compiled by institutions shows that the Relative Strength Index (RSI) of Southeast Asian currencies in the technical indicators (indicating when the currency value appears to be excessively pushed up) has broken through the 70 mark. Once this level is breached, the currency exchange rate is usually considered to be in an "overbought" phase, which implies an inevitable short-term technical correction. Recently, due to traders betting on a rate cut by the Federal Reserve in September and betting on a potential "soft landing" in the US economy, Southeast Asian currencies have dominated the top four spots in the Asian currency performance rankings this month.

DBS Group Holdings Ltd. stated in a report released on Tuesday that the strong Singapore Dollar's performance since the beginning of the year may also consolidate in the near term and be in an "overbought" state along with other Asian currencies.

The composite index of the Thai Baht, Malaysian Ringgit, Indonesian Rupiah, Philippine Peso, and Singapore Dollar exchange rates against the US dollar surged by 4.25% in August, marking the best monthly performance since 2015. With market bets on a Fed rate cut and upgraded bets on a soft landing in the US economy, Southeast Asian currencies have seen a comprehensive rise, although the increase outside Southeast Asia has been relatively smaller. The Relative Strength Index of the Bloomberg compiled overall Asian currency index against the US dollar is 69, not as strong as the performance of Southeast Asian currencies against the US dollar.

In a report, Capital Economics wrote, "We expect that over time, most Asian currencies will rise further, even though their largest rebound period may have passed." "We believe that the short-term boost from relative interest rates and yields may have run its course."

Last Friday, Federal Reserve Chairman Powell announced at the Jackson Hole Global Central Bankers' Symposium, which was the focus of the financial markets, that the Fed's rate cut cycle is about to begin. He not only officially mentioned that "the time for monetary policy adjustment has come," implying that the Fed's rate cut cycle is imminent, but also hinted through various wordings that the Fed's future main task is to avoid an economic recession and ensure a successful "soft landing" for the US economy Alleviating concerns about the recession of the world's largest economy is a positive development for many export-oriented countries in Asia, especially for Southeast Asian countries that rely on export-driven economic growth. Therefore, the expectation of a soft landing for the US economy has led to a significant appreciation of the South Korean won in August, reaching its highest level since March. The Philippine peso also saw its largest increase since November in August.

The Malaysian ringgit hit its highest level against the US dollar since February 2023 in August. Recently, Malaysia announced that its second-quarter GDP growth exceeded expectations compared to the same period last year, and global funds have poured the largest cash inflows into the Malaysian stock market since June.

However, some currencies may have more room for appreciation compared to other Asian currencies.

Philip Wee, Senior FX Strategist at DBS, stated: "Unless there is a significant impact on the global economy and financial markets, we believe that currencies like the Indonesian rupiah and the Philippine peso should be evaluated to see if they can recover more of the exchange rate losses between 2022 and 2023, similar to the continued strength of the Malaysian ringgit this year, and whether they can recover losses in the Thai baht exchange rate to a relatively lesser extent."

Barclays Plc's analyst team mentioned in a report that the decreasing trend in political risks in Thailand will help attract larger foreign capital inflows, thereby boosting the Thai baht exchange rate. The baht appreciated against the US dollar to 33.84, the highest level since January, after Prayut Chan-o-cha secured enough votes in parliament to become the next Prime Minister of Thailand. This helps alleviate concerns about a prolonged political vacuum in Thailand following the removal of the former Prime Minister by the Constitutional Court for violating ethical standards