Most Asian currencies rose on Wednesday ahead of further signals on interest rate cuts from the Federal Reserve, while the Japanese yen was volatile after mixed signals from the Bank of Japan.
The Australian dollar was an exception among its regional peers, with the currency sliding to a three-month low after data showed a slight decline in core consumer price inflation – reducing the chances of an interest rate hike by the Reserve Bank of Australia.
Yen volatile, USD/JPY seesaws amid mixed signals from BOJ
The Japanese yen was volatile, with the pair swinging in a 0.3% range around 0% after the Bank of Japan issued a mixed statement during its meeting.
The central bank raised interest rates by 15 basis points to around 0.25% – the upper end of market expectations.
But it also said it would cut the pace of its purchases of Japanese government bonds by just half — to 3 trillion yen ($19.5 billion) from 6 trillion yen by the first quarter of 2026. The Bank of Japan will reduce its purchases of Japanese government bonds by 400 billion yen each quarter.
Bank of Japan members also cut their growth and inflation forecasts for fiscal 2024, raising uncertainty about how much room the central bank has to tighten monetary policy.
However, the yen continued to make strong gains throughout July, as a combination of a decline in the carry trade and suspected government intervention led to buying of the currency.
Dollar falls as focus turns to Fed rate cut signals
The dollar and the euro were down 0.2% each in Asian trading, and have seen some volatility this week as traders prepare for a Federal Reserve meeting later on Wednesday.
The central bank is widely expected to leave interest rates unchanged. But any signals about plans to cut rates will be closely watched, especially in the wake of some weak inflation readings and dovish comments from Fed officials.
General expectations point to a 25 basis point rate cut in September, according to .
This week also focuses on key data, due out on Friday.
Australian Dollar Falls, AUDUSD at 3-Month Low on Weak Inflation
The Australian dollar was the worst performer in Asia, with the pair falling 0.5% to its weakest level in three months.
The Australian dollar’s decline was mainly driven by some weak consumer price index data for the second quarter of the year. While GDP grew as expected in the second quarter, its decline has raised hopes that inflation will ease in the coming months, reducing the need for an interest rate hike by the Reserve Bank of Australia.
Broader Asian currencies rose, tracking a weaker dollar. The Chinese yuan fell 0.2% as weak data and positive government comments bolstered expectations for more stimulus measures in the country.
The South Korean won pair fell by 0.3%, while the Singapore dollar pair moved sideways.
The Indian Rupee pair held near a record high of 83.8, seeing little relief from the dollar’s weakness.
