Most Asian currencies rose on Tuesday, while the dollar fell as the greenback’s recovery slowed due to continued expectations of interest rate cuts and uncertainty over the 2024 presidential election.
However, sentiment towards Asia remained restrained by concerns about China, amid signs of a slowing economic recovery and uncertainty about how US policies will handle the country in the coming months.
Japanese Yen Outperforms US Dollar, Japanese Yen Falls to 156
The Japanese yen was the best performer on the day, continuing its rise against the dollar after suspected government intervention last week.
The pair fell 0.4% to 156.41 yen, approaching its lowest level in a month and a half.
A senior Japanese government official has called for more clarity on the Bank of Japan’s interest rate hike, the Financial Times reported on Tuesday. The comments come just a week before a monetary policy meeting, where some analysts expect the bank to raise rates by 10 basis points. The recent increase in nationwide inflation has supported that idea, although inflation remains relatively sluggish.
Uncertainty over the Bank of Japan has been a major drag on the yen in recent months, with the central bank giving few signals on when it will tighten monetary policy further.
Dollar falls as presidential election nears, focus on rate cuts
Crude oil and gold prices fell 0.1% each in Asian trading, pausing after a sharp rebound over the past two sessions.
The US dollar turned volatile amid growing uncertainty over the US presidential race, after President Joe Biden said he would not seek re-election and endorsed Vice President Kamala Harris as the Democratic candidate.
Reports on Monday said Harris had secured enough support from Democratic delegates to become the party’s presidential nominee, but she still needs a formal nomination.
However, Republican nominee Donald Trump is projected to be leading Biden and Harris in polls as of last week, according to CBS and HarrisX data.
Expectations of a Trump presidency had given the dollar some strength, with analysts saying he was likely to enact protectionist trade policies.
But the dollar has suffered sharp losses in recent weeks amid growing conviction that the Federal Reserve will cut interest rates in September. The central bank is scheduled to meet next week.
Broader Asian currencies were higher. The Singapore dollar fell 0.1%, while the South Korean won fell 0.3%. Data showed that South Korea’s producer price inflation rose slightly in June.
The Indian Rupee pair fell slightly but remained close to the record highs hit earlier in July. The focus was on the Indian government’s economic reform plan, which is due to be unveiled later in the day.
Chinese Yuan Fragile Amid Economic Uncertainty
The Chinese yuan was little moved on Tuesday, as it saw no relief after an unexpected interest rate cut by the People’s Bank of China.
The pair stabilized around the 7.2738 yuan level, remaining close to levels last recorded in November.
The currency has been hit hard by growing uncertainty over the Chinese economy, especially after recent data showed it grew less than expected in the second quarter.
Speculation about a Trump presidency has also weighed on the yuan, given that the Trump administration sparked a trade war with Beijing in the late 2000s.
Concerns about China weighed on some Asian currencies, with the Australian dollar down 0.1%, pressured by the country’s large trade exposure to China.