Asian currencies experienced a widespread weakening on Wednesday, with the dollar strengthening following comments from Federal Reserve officials that prompted markets to reassess expectations for U.S. interest rate cuts.
The Japanese yen, in particular, continued to underperform against its peers, depreciating against the dollar despite ongoing warnings from government officials regarding potential intervention in currency markets.
Similarly, the Australian dollar remained in a weakened state following a less hawkish stance from the Reserve Bank of Australia (RBA) in its recent announcement.
Japanese Yen Weakens Despite Intervention Threats
The USDJPY pair, indicative of yen strength, rose by 0.3% and surpassed the 155 level, retracing towards the 34-year highs of over 160 reached last week. Despite previous intervention efforts by the Japanese government and some dollar weakness, market speculation against the yen resumed amid uncertainties surrounding U.S. interest rate cuts, despite Japanese officials’ caution against prolonged yen weakness.
Australian Dollar Continues Decline After RBA Announcement
The AUDUSD pair declined by 0.4% on Wednesday, extending losses from the prior session following the RBA’s less hawkish tone than anticipated. While the RBA maintained steady rates and acknowledged persistent inflation, it refrained from signaling further rate hikes, contrary to market expectations. Consequently, traders adjusted their outlook on the Australian dollar, which had surged to near two-month highs ahead of the RBA meeting.
Dollar Strengthens on Diminished Rate Cut Expectations
The dollar index and dollar index futures recorded a 0.1% increase in Asian trading, building on overnight gains fueled by remarks from several Fed officials suggesting a likelihood of unchanged U.S. rates for the remainder of the year. Despite earlier speculation on a September rate cut following softer-than-expected nonfarm payrolls data, the Fed’s emphasis on persistent inflation served to bolster the dollar and dampen risk-driven assets, leading to sustained weakness in Asian currencies.
Market Reaction and Outlook for Asian Currencies
The Chinese yuan‘s USDCNY pair edged up by 0.1%, with market focus turning to forthcoming trade data for April for insights into Asia’s largest economy. Meanwhile, the South Korean won‘s USDKRW pair surged by 0.5%, and the Singapore dollar’s USDSGD pair saw a modest 0.1% increase. The Indian rupee‘s USDINR pair remained within sight of record highs above 83.5, with expectations of heightened volatility amid the 2024 general elections.
