Investing.com — Most Asian currencies strengthened Thursday as the dollar fell after the Federal Reserve signaled a rate cut was imminent, while the Japanese yen hit a five-month high after aggressive signals from the Bank of Japan.
But China’s yuan lagged its peers, as did the Australian dollar, following weaker economic signals from Asia’s largest economy.
They led to steep losses after Fed Chairman Jerome Powell said Wednesday that a September rate cut was possible based on more encouraging inflation and labor market data.
His comments showed that markets had almost fully priced in a 25 basis point cut in September, along with a slim chance of a 50 basis point cut.
The prospect of lower interest rates boosted most Asian currencies.
Japanese Yen further, USDJPY below 150 on aggressive BOJ
The yen was the best performer in Asia on Thursday, extending strong gains from the previous session after the Bank of Japan and signaling more potential gains this year.
The yen pair fell above the 150 yen level for the first time since March, continuing its sharp decline through most of July.
The BOJ raised short-term interest rates by 15 basis points and announced plans to halve the pace of quantitative easing until early 2026. The yen had initially registered a volatile reaction to this move as the extended timeline for QE rollback was seen as easing.
But comments from Governor Kazuo Ueda returned the BOJ’s perception to hawkish territory. Ueda said the BOJ was prepared to raise rates even higher this year due to an expected rise in inflation and improving economic conditions.
Ueda stated that higher wages would increase consumption and inflation, which was in line with the central bank’s expectations.
He also said that 0.5% is not an upper limit for the BOJ in raising rates.
The prospect of higher domestic interest rates and lower US interest rates bodes well for the yen, which has underperformed over the past two years. But the yen’s strength also put an end to a broader carry trade.
The Chinese yuan lags amid more economic problems
China’s yuan lagged most of its Asian peers on Thursday following weaker purchasing managers’ index data from the country.
The pair rose 0.2%, registering wild swings in recent sessions as traders grappled with weak data from the country.
data showed an unexpected contraction in China’s manufacturing sector, in line with government PMI data on Wednesday.
The figures fueled concerns about a broader slowdown in China’s biggest economic engines, further souring sentiment toward the country. They also led to increased calls for stimulus measures from Beijing.
Concerns about China weighed on the Australian dollar, with the 0.2% decline affecting the currency’s large trading exposure to China. Stronger-than-expected figures did little to help Australians as the trade surplus remained near its lowest level in four years.
Other Asian currencies advanced on the prospect of lower US interest rates. The South Korean won pair fell 0.4%, while the Indian rupee pair stabilized after falling sharply from record highs on Wednesday.
