Asian Currencies Recover Slightly as Dollar Stabilizes
Recovery in Asian Currencies After Dollar Surge
Most Asian currencies rose slightly on Tuesday, recovering marginally after growing expectations of higher-for-longer U.S. interest rates pushed up the dollar and weighed heavily on regional markets.
Steadying U.S. Dollar
Regional currencies saw some relief as the U.S. dollar steadied after racing to near three-month highs this week. The dollar was buoyed chiefly by a string of hotter-than-expected U.S. economic readings, as well as comments from Federal Reserve Chair Jerome Powell, who said that rates will remain steady in the time being.
Australian Dollar’s Resilience
The Australian dollar was the best performer among its Asian peers, rising 0.6% from an over 1-½ month low after the Reserve Bank of Australia, and warned of more rate hikes if inflation remained sticky. The RBA’s warning caught some traders off-guard, especially as recent declines in Australian inflation spurred bets that the RBA could signal interest rate cuts this year. But the bank gave no such indication on Tuesday.
Challenges in the Australian Economy
Other data pointed to more cooling in the Australian economy. While Australian wages grew 0.3% quarter-on-quarter in the December quarter, they still shrank 1% from last year.
Rise in Broader Asian Currencies
Broader Asian currencies rose slightly. The Chinese yuan added 0.1% after sinking to an over one-month low, while the Thai baht rose 0.1%. The Indian rupee was flat, but was once again close to breaking below the 7.2 level against the dollar- its weakest level in 1-½ months.
Upcoming Economic Events
The inflation data is also due before the week-long Lunar New Year holiday, which begins this Friday. The Indian rupee tread water around the 83 level, with focus turning to a Reserve Bank of India meeting this Thursday.
Impact of U.S. Rate Outlook on Asian Currencies
Most Asian currencies were nursing steep losses over the past two sessions, as markets began steadily pricing out the chances of early interest rate cuts by the Fed. Powell’s comments on late-Sunday reiterated the Fed’s earlier messaging that resilience in the economy gives the bank more headroom to keep monetary policy restrictive.