The blistering rally in Southeast Asian currencies versus the dollar may lose momentum as investor exuberance over a pending Federal Reserve policy pivot fades, at least according to one closely-watched gauge of momentum.

The Relative Strength Index for a regional gauge - which indicates when values look stretched - has breached the 70 mark at which a currency is typically considered overbought, data compiled by Bloomberg show. That’s after Southeast Asian currencies occupied the top four spots of regional performance rankings this month amid bets that Fed rate cuts are coming in September.

DBS Group Holdings Ltd said in a note on Tuesday that the Singapore dollar was likely to consolidate in the near term and that it was “overbought” along with other Asian currencies.

A Bloomberg index of the Thai baht, Malaysian ringgit, Indonesian rupiah, Philippine peso and Singapore dollar jumped 4.25% in August, its best monthly performance since at least 2015. Asian currencies have rallied across the board on Fed bets, but gains outside Southeast Asia have been smaller in comparison, and the RSI for Bloomberg’s Asia Dollar Index was at 69.

“We expect most Asian currencies to make further gains over time, even if their biggest rallies may now be behind them,” Capital Economics wrote in a note. “We think the boost from relative interest rates has probably run its course.”

Still, some of the currencies may have room to rise more than others.

“Barring shocks to the global economy and financial markets, we think that it is appropriate to assess if Asian currencies like rupiah and Philippine peso can recover more of their 2022-23 losses like the ringgit and, to a lesser extent, the baht,” Philip Wee, senior currency strategist at DBS, said. 

Barclays Plc analysts said in a note that diminishing political risk in Thailand would help attract more foreign inflows, giving the baht a leg up.

  - Bloomberg