Investing.com–Most Asian currencies weakened slightly on Tuesday as the dollar stabilized following a recent rout, while the Japanese yen fell after a seven-month peak.
The Australian dollar was among the better performers in the region, firming after the Reserve Bank of Australia kept interest rates unchanged but struck a hawkish chord amid the country’s stubborn inflation.
However, sentiment towards regional markets remained fragile, especially as fears of a US recession persisted, while the unwinding of the yen carry trade also led to widespread outflows from the region.
The yen is falling from seven-month highs, but strong wages herald resilience
The Japanese yen weakened on Tuesday, with the pair rising almost 1% from its weakest level in seven months. The pair had fallen to the mid-141 yen level.
The yen benefited from increased demand for safe havens as broader financial markets collapsed. Hawkish signals from the Bank of Japan – which raised rates and announced further rate hikes – also boosted the currency, as did an expiring carry trade.
The strong earnings data, which showed a consistent recovery in earnings through June, also boosted the BoJ’s expectations that higher wages will boost spending and inflation this year.
But the numbers exceeded expectations in June and fell more than expected from last year.
Australian dollar companies as the RBA gets aggressive
The Australian dollar strengthened, rising 0.2% after the RBA, as widely expected.
But the central bank said it will keep policy restrictive in coming months, citing pressure from persistent inflation. While the bank did not explicitly mention the potential for more rate hikes, it said it was prepared to take measures to reduce inflation.
Analysts do not expect the RBA to raise rates further as inflation shows mild signs of easing in the second quarter. But it is widely expected that the central bank will keep interest rates high for longer, which will benefit Australians.
The dollar remains stable, but interest rate cuts limit the recovery
The and rose 0.2% each on Tuesday, steadying from a decline to near seven-month lows.
The dollar has been battered by fears of a US recession following a series of weak labor market data.
While some weakness in the labor market was attributed to the impact of a recent hurricane, the soft data raised expectations that the Federal Reserve will have to cut interest rates more than initially expected.
This idea negatively impacted the dollar but provided little relief for Asian currencies as risk appetite deteriorated.
Broader Asian currencies fell. The Chinese yuan pair rose 0.2% ahead of key trade and inflation data this week.
The South Korean won pair rose 0.5%, while the Indian rupee pair hovered near record highs.
