Asian currencies experienced a slight decline on Tuesday amidst persistent concerns regarding a decelerating Chinese economic recovery and the likelihood of sustained high U.S. interest rates. Meanwhile, the U.S. dollar edged up, maintaining its position near three-month highs.
The People’s Bank of China implemented a larger-than-anticipated reduction of 25 basis points in its benchmark five-year loan prime rate, bringing it to a record low of 3.95%. However, this move failed to uplift Asian markets, contributing to growing apprehensions within the government about a slowdown in the region’s largest economy.
The yuan witnessed a minor decrease following the rate cut, but substantial losses were mitigated by a stronger-than-anticipated midpoint fix from the People’s Bank of China. Despite this, the yuan hovered near its lowest level in three months, approaching the 7.2 level against the dollar.
Across the broader Asian currency spectrum, concerns lingered due to robust U.S. inflation readings from the previous week, pushing the dollar towards a three-month peak. However, with U.S. markets closed on Monday for a holiday, the dollar observed limited movement.
In Asian trade, both the dollar index and dollar index futures saw a 0.1% increase, influenced by the anticipation of sustained higher U.S. interest rates in 2024.
The Japanese yen faced notable downward pressure on Tuesday amid apprehensions about elevated U.S. rates. The currency weakened beyond the 150 level, prompted by concerns over the gradual departure from the Bank of Japan’s extremely accommodative monetary stance.
Nevertheless, the yen found a degree of support around 150 as market participants monitored the potential intervention in currency markets by the Japanese government. Historical patterns suggest that breaches beyond the 150 level have prompted government intervention, with officials verbally cautioning against such movements last week.
The Australian dollar experienced a 0.1% decline, despite the Reserve Bank of Australia’s (RBA) February meeting minutes indicating a continued inclination towards further interest rate hikes to manage persistent inflation pressures. The RBA, however, emphasized its readiness to swiftly adjust monetary conditions if the Australian economy faces rapid cooling due to the impact of elevated rates.
Earlier in February, the RBA maintained rates at 4.35% but surprised markets with an unexpectedly hawkish tone, providing some support to the Australian dollar.
Among other Asian currencies, the Singapore dollar saw a 0.1% drop, while the South Korean won experienced a 0.3% decline. The Indian rupee marginally firmed below the 83 level but remained exposed to vulnerabilities.