Asian currencies moved modestly higher on Wednesday as investors evaluated the impact of newly implemented U.S. trade tariffs. Meanwhile, the Australian dollar strengthened after stronger-than-expected inflation data reinforced expectations that the Reserve Bank of Australia (RBA) could raise interest rates again.
The U.S. Dollar Index declined by 0.1% during Asian trading hours. U.S. Dollar Index Futures were also down 0.1% as of 00:24 (05:24 GMT), reflecting slightly softer demand for the greenback.
Trump’s New Tariffs Under Market Scrutiny
U.S. President Donald Trump’s new 10% global tariff officially took effect on Tuesday, with markets preparing for a potential increase to 15%. The latest trade measures have added another layer of uncertainty to global markets.
Trump also cautioned that trading partners who fail to comply with recently negotiated trade agreements could face further penalties. The warning has kept investors alert to possible retaliatory steps or additional restrictions.
According to analysts at MUFG, several ASEAN economies could benefit marginally from the current tariff level, as it remains somewhat lower than their existing reciprocal tariff rates. However, broader trade uncertainty continues to weigh on sentiment.
Asian FX Performance: Won Leads Gains
The South Korean won led regional gains, with the USD/KRW pair falling 0.8%.
China’s onshore yuan also strengthened slightly, as USD/CNY declined 0.2%. Similarly, the Singapore dollar gained ground, with USD/SGD slipping 0.2%.
In contrast, the Indian rupee remained largely stable, with the USD/INR pair trading near flat levels.
Australian Dollar Rallies on Strong Inflation Data
The Australian dollar outperformed, with AUD/USD rising 0.7%.
Fresh data showed that Australia’s headline inflation rate increased 3.8% year-on-year in January, matching December’s figure but exceeding market expectations. More notably, the RBA’s preferred trimmed-mean core inflation rose to 3.4%, marking its highest level in over a year.
The stronger inflation reading prompted traders to raise expectations for a possible interest rate hike at the RBA’s May meeting, providing support for the Aussie dollar.
Japanese Yen Near Two-Week High Amid Policy Debate
The Japanese yen edged higher, with USD/JPY down 0.1%, keeping the currency close to a two-week high.
Reports indicated that Prime Minister Sanae Takaichi expressed concerns about further interest rate increases during discussions with Bank of Japan Governor Kazuo Ueda. The news sparked speculation that political resistance could limit the Bank of Japan’s tightening cycle.
MUFG analysts noted that USD/JPY is likely to experience continued two-way volatility. They added that if the yen weakens significantly, the risk of foreign exchange intervention could increase, potentially slowing the pace of depreciation.
