Asian Currency Weakens, Dollar Firms as Markets Reconsider Rate Cuts By

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LYNXMPEE650J2 M — Most Asian currencies weakened on Wednesday, while the dollar firmed after comments from Federal Reserve officials saw markets reconsidering expectations for U.S. interest rate cuts.

The Japanese yen remained an underperformer among its peers and weakened against the dollar, even as government officials continued to warn of more potential interventions in currency markets.

The Australian dollar’s underperformance also continued after the Reserve Bank of Australia struck a less aggressive chord than expected on Tuesday.

The Japanese yen weakens, the USDJPY rises despite intervention threats

The Japanese yen pair, which is inversely representative of the yen’s strength, rose 0.3% to cross the 155 level, moving back to a 34-year high of over 160 points last week.

The pair had fallen from that level after the Japanese government apparently intervened twice in the currency markets, while dollar weakness also benefited the yen.

But with markets questioning the prospects for US rate cuts, traders resumed speculation against the yen, even as Japanese officials warned of continued weakness in the currency.

The Australian dollar extends losses after a less aggressive RBA

The Australian dollar pair fell 0.4% on Wednesday, extending sharp declines from the previous session after the RBA struck a less hawkish tone than traders expected.

While the RBA warned that inflation will remain stubborn in coming months, it has not threatened to raise rates further – a scenario that had been priced into Australians in the run-up to the meeting.

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While the RBA also implied that rates will remain high for longer, markets have underestimated expectations of rate hikes in the Australian dollar, which had hit a near two-month high before Tuesday’s meeting.

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Still, losses in the Australian are expected to be contained as interest rates remain near 12-year highs, possibly for the remainder of 2024.

The dollar is strengthening as Fed officials ease interest rate cuts

In Asian trading, yields rose 0.1%, extending overnight gains after a slew of Fed officials warned that U.S. rates were likely to remain unchanged for the rest of the year.

While softer-than-expected data last week fueled some hopes for a rate cut in September, a slew of Fed officials warned this week that persistent inflation would likely give the bank more reason to keep rates static.

This rhetoric boosted the dollar and weighed on most risk-driven assets, with Asian currencies seeing continued weakness.

The Chinese yuan pair rose 0.1% as markets await April trading data due Thursday for more signals on Asia’s largest economy.

The South Korean won pair rose 0.5%, while the Singapore dollar pair rose 0.1%.

The Indian rupee pair remained in sight of record highs above 83.5, while the currency is set to experience higher volatility during the 2024 general elections.

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