Precise Investors Editorial Team
Diverging monetary policy paths remained the dominant driver for Asian currencies
Most Asian currencies weakened against a firmer U.S. dollar on Wednesday as renewed geopolitical tensions in the Middle East boosted demand for the dollar, while the Japanese yen hovered near a four-decade low and the Kiwi outperformed after a hawkish interest-rate hike from the Reserve Bank of New Zealand.
Diverging monetary policy paths remained the dominant driver for Asian currencies. While the Reserve Bank of New Zealand reinforced its inflation-fighting stance with another interest-rate hike, expectations that the Bank of Japan will normalize policy only gradually continued to weigh on the yen.
The New Zealand dollar outperformed peers, with USD/NZD falling over 0.5%, after the Reserve Bank of New Zealand raised its official cash rate by 25 basis points to 2.5%, as widely expected, and said “some further reduction in monetary stimulus is likely to be required” to return inflation to target. The Australian dollar edged higher with USD/AUD falling 0.1% to 0.6938.
The yen, meanwhile, remained pinned near a four-decade low after the USD/JPY climbed to around 162.46, extending gains for a fourth straight session and keeping traders alert for possible intervention by Japanese authorities.
USD/MYR rose around 0.3% to 4.08, with traders awaiting Bank Negara Malaysia’s policy decision on Thursday. OCBC expects the central bank to leave its overnight policy rate unchanged at 2.75%, while recent measures aimed at encouraging the repatriation and conversion of overseas earnings could help stabilize the ringgit if broader dollar strength eases.
Across Asia, USD/KRW rose about 0.3% to around 1,509 per dollar, as the won gave back early gains amid lingering caution over volatility in financial markets. Seoul’s finance ministry said policymakers would closely monitor risks after sharp swings in heavyweight semiconductor stocks unsettled investor sentiment earlier this week, even as the KOSPI recovered alongside a rebound in chipmakers.
USD/CNH edged 0.1% lower to around 6.80, while USD/CNY was little changed after the People’s Bank of China continued to set relatively firm daily reference rates. USD/INR added about 0.1% to trade near 95.08, USD/THB gained 0.2% to around 33.39, while USD/TWD climbed nearly 0.4% to 32.01.
Investors now await China’s June inflation report on Thursday for latest clues on the outlook for international monetary policy and currencies.
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