Asian currencies experienced a weakening trend on Tuesday as the dollar surged to over five-month highs. Despite stronger-than-expected Chinese gross domestic product (GDP) data, the Chinese yuan remained relatively stable. However, concerns arose due to softer industrial production and retail sales data for March, indicating a potential slowdown in the Chinese economy. The People’s Bank of China set a weak midpoint for the yuan, suggesting possible future weakness for the currency. The offshore yuan also saw a decline, reflecting persistent selling pressures.
Meanwhile, the dollar index and dollar index futures saw a 0.1% increase in Asian trade, reaching their highest levels since early November. This upward movement was supported by hotter-than-expected U.S. retail sales data for March, reinforcing inflation expectations. Consequently, traders adjusted their expectations for a June rate cut by the Federal Reserve. All eyes are now on Fed Chair Jerome Powell’s upcoming address for insights into the trajectory of interest rates and the U.S. economy.
Amidst escalating geopolitical tensions in the Middle East and fears of prolonged higher U.S. rates, Asian currencies faced significant pressure. Safe-haven demand bolstered the dollar’s attractiveness, leading to a retreat in risk-sensitive currencies. The Australian dollar, a common risk appetite indicator, fell to a five-month low, while the South Korean won and Singapore dollar experienced similar declines. The Indian rupee approached record highs, trading significantly above the 83.5 level. Additionally, the Japanese yen weakened further, reaching a new 34-year high against the U.S. dollar.
Despite warnings from Japanese officials against excessive forex speculation, the yen continued to depreciate. This trend raised concerns about potential intervention by the Japanese government to stabilize the currency. Such interventions typically involve significant dollar selling to lower the USDJPY pair. Traders remained vigilant for any signs of government intervention, highlighting the uncertainty surrounding the currency markets.
The escalating geopolitical tensions, particularly between Iran and Israel, coupled with expectations of prolonged higher U.S. interest rates, have exerted downward pressure on Asian currencies. While positive Chinese GDP data initially instilled optimism, concerns about slowing economic momentum resurfaced due to weak industrial production and retail sales figures. The dollar’s strength and safe-haven appeal have further exacerbated the depreciation of risk-sensitive currencies in the region. Moving forward, market participants will closely monitor key economic indicators and geopolitical developments to gauge the future trajectory of Asian currencies amidst these challenging conditions.