Asian Currencies Slip as Fed Autonomy Concerns Rattle Markets; Aussie Leads Losses on Weak Jobs Data
Most Asian currencies declined on Thursday as the U.S. dollar regained some ground following a volatile session dominated by fears over the Federal Reserve’s independence. The Australian dollar led the losses after a jump in unemployment fueled speculation of further interest rate cuts by the Reserve Bank of Australia.
The U.S. Dollar Index, which tracks the greenback against a group of major currencies, rose 0.2% during Asian trading hours, recovering from a 0.3% decline on Wednesday caused by sharp intraday losses.
While Asian currencies briefly benefited from a weaker dollar overnight, they reversed course Thursday amid ongoing worries about U.S. trade tariffs and central bank credibility.
Fed Independence Concerns Spark Caution in Markets
Investor sentiment turned cautious after President Donald Trump denied he was planning to dismiss Federal Reserve Chair Jerome Powell, though he notably did not rule it out. Trump reiterated his dissatisfaction with Powell’s reluctance to cut interest rates.
These remarks followed a week of intensified criticism from Trump and his allies, raising fresh questions about the Fed’s independence and spurring a risk-off mood across global markets.
“The market reacted as if Powell’s removal was imminent,” analysts at ING wrote. “While we still consider that outcome unlikely, the response offers a useful preview of how markets might behave if it actually happened.”
Following these developments, the dollar and equity markets fell, while longer-term U.S. Treasury yields rose. In Asia, currencies fluctuated overnight before broadly weakening on Thursday.
Asia FX Down; Yen Falls on Election Uncertainty
The Japanese yen declined, with the USD/JPY pair rising 0.5%, as markets digested polling data suggesting Prime Minister Shigeru Ishiba’s coalition could lose its upper house majority in the upcoming election.
Other regional currencies also weakened:
- The South Korean won (USD/KRW) rose 0.4%
- The Singapore dollar (USD/SGD) edged up 0.3%
- Both onshore (USD/CNY) and offshore (USD/CNH) Chinese yuan were little changed
- The Indian rupee (USD/INR) held steady
- Elsewhere in Southeast Asia:
- The Philippine peso (USD/PHP) rose 0.5%
- The Indonesian rupiah (USD/IDR) advanced 0.6%
Australian Dollar Tumbles After Weak Jobs Report
The Australian dollar dropped as much as 1%, hitting its lowest level in over three weeks against the U.S. dollar.
Thursday’s data showed that job growth in Australia significantly missed expectations in June, while the unemployment rate unexpectedly rose, pointing to a slowdown in labor market momentum.
This softness in employment, combined with easing inflation pressures, may give the Reserve Bank of Australia greater flexibility to reduce interest rates. Policymakers could also use this room to cushion the economy from the impact of global trade tensions.
