Most Asian currencies were slightly lower on Tuesday as the dollar steadied after its recent slide, with the Japanese yen retreating from seven-month highs.
The Australian dollar was among the region’s best performing currencies, rising after the Reserve Bank of Australia kept interest rates unchanged but took a hawkish stance amid the country’s persistent inflation.
However, sentiment towards regional markets remained fragile, especially as concerns about a recession in the US persist, while the decline in the yen carry trade led to broad-based outflows from the region.
Yen retreats from 7-month high, but strong wages point to resilience
The Japanese yen fell on Tuesday, with the pair rising about 1% from its weakest level in seven months. The pair had fallen to mid-141 levels.
The yen benefited from increased demand for safe havens as broader financial markets collapsed. Dovish signals from the Bank of Japan, which raised interest rates and signaled more increases, also boosted the currency, as did a decline in the carry trade.
The strong data – which showed a steady rebound in earnings through June – also reinforced the Bank of Japan’s expectations that higher wages will lead to higher spending and inflation this year.
But the data in June came in below expectations, with the volume contracting more than expected compared to last year.
Australian Dollar Rises as RBA Turns Tighter
The Australian dollar rose, with the pair up 0.2% after the Reserve Bank of Australia’s decision as widely expected.
But the central bank said it would maintain its tight policy in the coming months, citing persistent inflation pressures. While the bank did not explicitly mention the possibility of raising interest rates further, it said it was ready to take any measures to reduce inflation.
Analysts do not expect the Reserve Bank of Australia to raise interest rates again, as inflation in the second quarter showed little sign of slowing. But the central bank is widely expected to keep rates higher for longer, which would benefit the Australian dollar.
Dollar Steady But Rate Cut Bets Cap Recovery
Gold and silver prices rose 0.2% each on Tuesday, stabilizing after falling to their lowest levels in about seven months.
The dollar was hit hard by fears of a recession in the US economy after a series of weak readings on the labour market.
While some of the weakness in the labor market is attributed to the impact of the recent hurricane, the weak data has reinforced bets that the Federal Reserve will be forced to cut interest rates more than initially expected.
The idea weighed on the dollar, but offered little comfort to Asian currencies as risk appetite deteriorated.
Broader Asian currencies were lower, with the Chinese yuan rising 0.2% in anticipation of key trade and inflation data this week.
The South Korean won rose 0.5%, while the Indian rupee held near record highs.