In Asian trading on Tuesday, most Asian currencies experienced declines as traders maintained caution ahead of a Federal Reserve meeting scheduled for later in the week. Meanwhile, the Japanese yen weakened significantly against the US dollar (USDJPY) following a historic rate hike by the Bank of Japan (BOJ).
BOJ Hikes Rates, USDJPY Surges on Accommodative Outlook:
The yen depreciated sharply after the BOJ’s decision to raise interest rates by 0.1%, marking its first rate hike in 17 years. Despite the hike, the BOJ signaled a continued accommodative stance on monetary policy due to uncertainties surrounding the Japanese economy. The modest rate increase and the central bank’s commitment to maintaining accommodative conditions weighed on the yen, leading to a surge in the USDJPY pair, which tested the 150 level.
AUDUSD Declines on Less Hawkish RBA:
The Australian dollar also faced downward pressure, with the AUDUSD pair falling 0.4% following the Reserve Bank of Australia’s decision to keep interest rates unchanged. However, the RBA’s less hawkish tone in its monetary policy statement disappointed markets, leading to the decline in the Australian dollar.
Dollar Strengthens Ahead of Fed Meeting:
The US dollar strengthened in Asian trade, supported by inflows amid uncertainty surrounding the Fed meeting and somewhat dovish signals from the BOJ. The dollar index and dollar index futures rose about 0.2% to near a two-week high as traders awaited the Fed’s decision on interest rates.
Fears of Fed Keep Most Asian Currencies Weak:
Amid concerns over the Fed’s stance, most Asian currencies traded weaker on Tuesday. The South Korean won’s USDKRW pair and the Singapore dollar’s USDSGD pair both rose 0.1%, reflecting the cautious sentiment. The Indian rupee remained flat, but the USDINR pair approached the 83 level, nearing record lows. The Chinese yuan’s onshore USDCNY pair traded sideways, while the offshore yuan’s USDCNH pair indicated negative sentiment toward the Chinese currency, trading above the 7.2 level.
Overall, uncertainties surrounding the Fed meeting and the BOJ’s accommodative stance kept Asian currencies under pressure, with the US dollar benefiting from safe-haven demand.