Dollar Holds Near One-Month High, Asian Currencies Broadly Weaker, Indonesian Rupiah Falls About 0.5%

As markets continued to digest the possibility of a Federal Reserve (Fed) rate hike this week, the US dollar index held near a one-month high on Tuesday (28th) at 101.46, with Asian currencies broadly weak. The Indonesian rupiah was the worst-performing Asian currency on the day, following the sudden resignation of Bank Indonesia Governor Perry Warjiyo.

Markets currently estimate a roughly 38% chance of a 25-basis-point rate hike by the Fed on Wednesday. Investors are also awaiting the release of US GDP and core Personal Consumption Expenditures (PCE) price index data to gain further policy guidance.

Although rate hike expectations are supporting the dollar, falling oil prices have temporarily eased inflation concerns, limiting volatility in major currencies. Crude oil prices remained depressed after earlier sharp declines, fueled by hopes of a diplomatic breakthrough between the US and Iran. US President Trump stated there is a 'good chance' of an agreement, effectively reducing the risk of energy-driven inflation shocks.

South Korean equities plunged on Tuesday due to a tech stock sell-off, but the won remained relatively stable. Offshore and onshore yuan saw little movement, while the yen continued to hover near multi-decade lows, with USD/JPY around 163.4. The New Taiwan dollar weakened, with USD/TWD rising about 0.4%.

USD/IDR rose 0.5%, primarily due to Warjiyo's resignation, with Deputy Governor Destry Damayanti currently serving as acting head. Warjiyo, who has served since 2018, established a policy framework combining interest rate adjustments and foreign exchange intervention to respond to shocks such as the pandemic.

DBS economists noted that investors are closely watching whether Bank Indonesia can maintain experienced leadership and independence to preserve market confidence in its monetary policy framework.

Lower oil prices are providing support for major energy-importing nations. The Indian rupee rose slightly by 0.1%, while the Philippine peso, though still near its historical low of 61.85, saw reduced pressure due to falling oil prices. The Bangko Sentral ng Pilipinas also stated it has conducted moderate intervention to maintain market order. Additionally, the Singapore dollar rose 0.1% on Tuesday following the Monetary Authority of Singapore's (MAS) announcement on Monday of a policy tightening.