Most Asian currencies were subdued on Wednesday and poised for monthly losses as high US yields, a firm dollar and expectations that the Federal Reserve will keep rates higher for longer weighed on sentiment, while regional stock markets traded mixed.
Among the weakest were currencies of oil-importing economies with current account deficits, with the Indian rupee, Indonesia's rupiah and the Philippine peso down 0.8%, 0.9% and 0.4%, respectively, over the month.
MSCI's broader global EM currencies index touched a record high earlier this month before giving up most of those gains by month-end, as simmering US-Iran tensions, higher oil prices and a global bond selloff rattled investor sentiment.
Higher oil prices risk worsening external balances for oil-importing economies while fuelling inflation. Rising Treasury yields are also narrowing the yield edge typically offered by Asian assets, reducing their attractiveness and adding to pressure on regional currencies.
The Thai baht and the Malaysian ringgit retreated more than 1.3% each in September, while the South Korean won was the only one to advance.
"Asia is no longer trading as one homogeneous block. In a world of 5% US Treasury yields, investors are paying much closer attention to external balances, energy dependence and where capital is actually flowing," said Jerome Tay, senior portfolio manager of fixed income Asia at Aberdeen Investments.
"In contrast, countries benefiting from strong external positions and structural investment flows linked to AI, semiconductors and technology supply chains should remain relatively resilient."
The rupiah rose 0.6% to 17,845 per dollar after breaching the key 18,000 level on Tuesday. However, it remained on track for its worst month since May and was the region's worst-performing currency this year.
The recovery came after Bank Indonesia said it would intervene in the spot market when needed to curb rupiah volatility, adding that its intervention strategy was flexible and dependent on market conditions.
Among emerging Asian stock markets, Taiwan gained more than 1%, led by a 1.2% rise in TSMC, the world's largest contract chipmaker.
"Investors are still willing to back companies with visible chip and server demand, even as higher US yields weigh on the wider region," said Glenn Yin, research director at brokerage ACCM, while warning against reading one positive session as a broad return of risk appetite.
Stocks in Kuala Lumpur rose 0.6%, while Jakarta's benchmark index rebounded 0.2%. Thai shares slid as much as 2% and were on course for their steepest one-day drop since June.
Indonesian stocks were on track for their worst month since June after falling more than 6%, while Malaysian shares were set for their steepest monthly decline since January 2025.
Singapore was headed for its first monthly loss in six months and Thailand was on course for its weakest month since March.
HIGHLIGHTS:
** Indonesia's August trade surplus expected to widen, September inflation seen higher: Reuters poll
** Thai August factory output rises 4.44% y/y, beats forecast
** Chinese factory activity expands in September amid AI boom - Reuters
