Asian Currencies Gain Amid Weaker Dollar and Reduced Fed Hike Odds

The US dollar experienced a decline in value at the end of the week as several softer US economic reports reduced expectations for another Federal Reserve interest rate hike. The Taiwan dollar and Indonesian rupiah were among the Asian currencies that benefited from this shift, with the former recording its biggest daily gain in four months on August 14.

The rupiah appreciated to IDR17,820 per dollar, gaining 0.36% over the week, although these figures require independent confirmation. The combined impact of softer US data led markets to reduce the probability of a September Federal Reserve rate increase from around 41% to approximately 31%.

MUFG has noted that higher US interest rates can attract capital towards dollar-denominated assets, but when investors begin to believe the Fed will stop tightening, the relative yield advantage of US assets becomes less compelling. This reduction in demand for dollars and support for emerging market currencies like those in Asia is particularly meaningful.

The Taiwan dollar's strength reflects more than just a decline in the US dollar; it also benefits from foreign equity inflows and its position as one of the most direct beneficiaries of the global semiconductor and artificial-intelligence investment cycle. MUFG expects Asian currency performance to become increasingly differentiated during the second half of 2026, with exposure to AI investment, external competitiveness, and domestic policy fundamentals determining which currencies outperform.