Asian Currencies

On Tuesday, Asian currencies saw a slight decline due to the uncertainty surrounding economic growth this year. The Australian dollar also retreated after the Reserve Bank decided to hold interest rates and indicated that inflation had likely peaked.

The RBA’s decision to keep interest rates at 3.60% resulted in a 0.3% decrease in the Australian dollar. The bank stated that it wanted to observe the full impact of its year-long rate hike cycle on the economy and believed that inflation had reached its highest point in over 30 years in December.

Despite inflation dropping for two consecutive months, it still remained above the RBA’s target range of 2% to 3%. Thus, the central bank cautioned that further rate hikes may be necessary to lower persistent inflation.

The Australian currency’s decline was influenced by the possibility of interest rates remaining constant, as well as an economic growth warning from the RBA.

In addition, Asian currencies were slightly lower, while the US dollar sustained overnight losses due to weak manufacturing data and an increase in oil prices, causing uncertainty about economic growth this year.

The Chinese yuan fell by 0.1% after Monday’s data indicated that the country’s manufacturing sector recovery was faltering due to global demand weakness. 

Meanwhile, weak manufacturing data from Japan affected the yen, which declined by 0.3% due to manufacturing activity remaining in contraction territory for five straight months.

On Tuesday, the dollar index and dollar index futures remained flat after declining overnight as weaker-than-anticipated manufacturing activity data suggested a mediocre outlook for the US economy.

As a result, investors are reconsidering how much economic leeway the Federal Reserve will have to continue raising interest rates, despite a surge in oil prices leading to higher fuel prices, which may increase inflation.

Although a less hawkish Fed is beneficial to Asian currencies, investors are still wary of risk-heavy assets due to increasing economic uncertainty.

The Thai baht declined by 0.2%, while the Indian rupee and South Korean won fell by 0.1% and 0.4%, respectively. The won was also influenced by marginally weaker-than-anticipated inflation data, which provided further support for the Bank of Korea’s decision earlier this year to halt interest rate hikes.

Investors are now focused on US nonfarm payrolls data due on Friday for additional information on monetary policy. Furthermore, there is an anticipated Indian interest rate decision, with the Reserve Bank expected to raise interest rates once more.


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