July 2 2024: Most Asian currencies weakened slightly on Tuesday as the dollar rebounded from recent losses in anticipation of upcoming interest rate signals, while the Japanese yen continued to decline, reaching levels last seen 38 years ago.
Regional currencies found little support even as traders increased their expectations for a September interest rate cut by the Federal Reserve. The anticipation of further cues from the Fed and insights into the U.S. labor market kept risk-driven asset appetite limited.
Japanese Yen Weakens, USD/JPY Rises with Intervention in Focus
The Japanese yen underperformed its Asian counterparts, with the USD/JPY pair, which measures the yen’s value against the dollar, rising 0.1% to 161.64 yen. This level is the highest since 1986.
The continued weakness in the yen has fueled speculation about potential government intervention in currency markets. Japanese ministers stated they remained vigilant over currency movements, though the USD/JPY pair was trading comfortably above the 160 yen level, which had previously triggered intervention in May.
Traders speculated that the government might be waiting for low market volumes during the July 4th Independence Day holiday to intervene.
Dollar Steadies as Powell, Payrolls, and Fed Minutes Awaited
The dollar index and U.S. Dollar Index Futures steadied in Asian trade after recovering from recent losses on Monday, with key cues on the Fed and U.S. interest rates expected this week.
Federal Reserve Chair Jerome Powell is scheduled to speak at a European Central Bank conference on Tuesday, with the minutes from the Fed’s June meeting due on Wednesday. Key nonfarm payrolls data for June, set to be released on Friday, will offer further insights into the labor market, a crucial factor for the Fed in considering rate cuts.
The dollar experienced some weakness last week as traders increased their bets on a 25 basis point rate cut in September. However, several Fed officials maintained that the central bank needs more confidence in cooling inflation before reducing rates.
Australian Dollar Dips as RBA Minutes Underwhelm
The Australian dollar’s AUD/USD pair fell 0.4% on Tuesday following the release of the Reserve Bank of Australia’s latest meeting minutes, which gave no clear signals on rate hikes.
While the minutes indicated that policymakers had considered a rate hike due to persistent inflation, they ultimately decided to keep rates steady.
ANZ analysts commented that there was “no smoking gun… to suggest a rate hike in August is the base case for the RBA,” and they expected the bank to maintain steady rates until a cut in February.
Conversely, UBS analysts argued that any further signs of persistent inflation could likely prompt an August hike.
Broader Asian Currencies Remain Largely Muted
The Chinese yuan’s USD/CNY pair remained at seven-month highs, while the Singapore dollar’s USD/SGD pair rose slightly. The South Korean won’s USD/KRW pair increased by 0.5% as data showed inflation cooled more than expected in June.
The Indian rupee’s USD/INR pair fluctuated around the mid-83 level, remaining close to recent record highs.
