Asian currencies experienced a slight increase on Wednesday as the dollar weakened, providing some relief to regional markets. Despite this, the Japanese yen continued to underperform, leading to fears of government intervention. The greenback’s retreat from recent highs was influenced by soft purchasing managers index data, but expectations of higher U.S. interest rates kept traders biased towards the dollar.
The Japanese yen saw minimal relief from the weaker dollar, with the USDJPY pair near 34-year highs. The yen’s weakness persisted even as Japanese officials warned of potential government intervention to support the currency. Traders closely monitored the USDJPY at 155 level, indicating possible government intervention. The upcoming Bank of Japan meeting is expected to maintain unchanged rates post a historic hike in March, with a focus on inflation and economic growth outlook.
On the other hand, the Australian dollar performed well, with the AUDUSD pair among the top gainers in Asia. The currency rose by 0.5% to a two-week high following stronger-than-expected consumer price index inflation in the first quarter. This data gives the Reserve Bank of Australia more reason to sustain higher interest rates for an extended period, benefiting the Australian dollar.
While the dollar index and futures remained stable in Asian trade after a recent decline, U.S. business activity showed unexpected weakness in the purchasing managers index data. Despite this, the dollar maintained most of its gains for April, dismissing early expectations of interest rate cuts by the Federal Reserve. The upcoming economic indicators such as first-quarter GDP data and PCE price index will influence the Fed’s decisions on interest rates.
Though the dollar weakness provided some relief to Asian currencies, they were still recuperating from losses in April. The Chinese yuan’s USDCNY pair steadied near five-month highs amid doubts about Asia’s recovery. Currency market intervention by the People’s Bank limited further depreciation of the yuan. The South Korean won’s USDKRW pair declined by 0.2%, while the Singapore dollar’s USDSGD pair fell by 0.1%.
The impact of dollar weakness on Asian currencies varied across different markets. While some currencies benefited from the weaker dollar, others continued to underperform due to various factors such as government intervention and economic indicators. The future trajectory of these currencies will depend on how key economic readings and central bank decisions unfold in the coming weeks.