Most Asian currencies fell on Wednesday as the dollar regained more ground after recent declines, while the yen fell sharply after Bank of Japan officials downplayed expectations of a rate hike.
Sentiment towards regional markets remained fragile, especially after concerns about a recession in the United States caused risk-oriented assets to fall sharply this week.
The dollar and yen each rose 0.3 percent in Asian trading, benefiting in part from a weaker yen and amid some bets that U.S. economic growth will not deteriorate as sharply as markets fear.
Japanese yen falls after Bank of Japan downplays rate hike bets
The Japanese yen was the worst performer in Asia, with the pair rising about 2% to around 147. The pair has returned to the 150-yen level after falling to 141 yen last week, with the yen supported by a combination of safe-haven demand and hawkish signals from the Bank of Japan.
But the yen lost most of its recent gains after Bank of Japan Deputy Governor Shinichi Uchida said the bank would not raise interest rates when markets are unstable.
His comments came amid sharp volatility in Japanese stock markets over the past two days, with the yen also making volatile moves. The comments also undermined the Bank of Japan’s previous message that interest rates would rise without restraint this year.
However, the yen remained well above the 38-year lows it hit this year and is expected to find further support as Japan’s economy improves on higher wage growth.
Australian Dollar Outperforms Australian Dollar on Tight RBA Policy
The Australian dollar was the best performer in Asia, with the pair rising 0.7% in an extension of gains from the previous session.
The Australian dollar gained after the central bank kept interest rates steady on Tuesday, but struck a hawkish note, citing concerns about persistent inflation.
The RBA’s comments have completely dismissed traders’ expectations of a rate cut in 2024, and spurred bets that rates will stay higher for longer.
Analysts at ANZ said the Reserve Bank of Australia would not start cutting interest rates until February 2025, much later than most major central banks. But such a scenario would be good for the Australian dollar.
Chinese Yuan Weakens After Mixed Trade Data
The Chinese yuan extended losses after mixed trade data, with the pair up 0.4%.
China’s economic activity contracted more than expected in July, as the economy was disappointed after the European Union imposed steep tariffs on Chinese electric car imports earlier in July.
But the Chinese beat expectations, fueling some bets on a recovery in domestic demand.
Attention now focuses on the Chinese language version, due out later this week.
Most of the broader Asian currencies fell as sentiment remained weak. The South Korean won rose 0.1%, while the Singapore dollar rose 0.3%.
The Indian Rupee pair hit a new record high of Rs 84.048, despite the ongoing measures by the Reserve Bank to support the currency.