US Dollar May Increase Pressure on Emerging Markets

What’s Happening?

The gain of the US Dollar has been against ASEAN currencies. It had gained 0.14% against the Singapore dollar, 2.16% against the Thai baht currency, and 0.71% against the Philippine peso. 

The Indonesian Rupiah was more resilient, with USD/IDR falling 0.54%. This fall could be explained by more optimistic local market conditions.

Its resilience has also done its job by outperforming similar indices of Thailand, Singapore, and the Philippines. The top US forex brokers have their eyes set on all factors affecting the market before proceeding to make any recommendation to traders.

An overall picture shows that the Asian market is emerging, but there are a few obstacles that it needs to tackle. The obstacles are Russia’s invasion and the long-awaited decision of the US Federal Reserve with regard to an increase in the interest rate.

Indonesia’s Rupiah is showing resilience due to its reliance on commodity exports, prices of which have rapidly increased amid the Russia-Ukraine conflict. However, experts believe that the US Dollar could dominate Rupiah in the coming days.

As the Asian markets continue to explode, they remain likely to be at risk from external factors, like Russia’s invasion and the US Fed Reserve’s decision to increase the rate of interest.

Developing nations are on the verge of suffering as these events could trigger an increase in the outflow of capital and hurt the sentiments of local currencies.

Another statistic that has caught the attention of foreign exchange traders is a drop in the Bloomberg gauge of emerging markets’ capital flow. The figure has dropped to 16.5% since the early days of 2021. The value has been at its lowest since November 2020.

ASEAN economies have accumulated their fair share of foreign exchange reserves, but the riskiest investments will remain vulnerable out of the fear that traders could pull out from the global market.

Once the Russia-Ukraine conflict is over, everyone will go back to wait for the US Federal Reserve’s decision on hiking the interest rate. The hike is expected to begin soon.

Emerging markets will witness a challenge as a higher interest rate means that they have to pay more on their foreign debts. Repayment will also be made difficult with a fall in the value of currencies.