Asia FX Slips as U.S. Shutdown Extends; Yen Falls, Kiwi Drops After RBNZ Cut
Most Asian currencies weakened against a stronger U.S. dollar on Wednesday. Markets were hit by rising concern over the prolonged U.S. government shutdown. Meanwhile, the New Zealand dollar slumped after the central bank announced a larger-than-expected rate cut.
In Tokyo, the Japanese yen tumbled to its lowest level in almost eight months. The fall came after conservative LDP leader Sanae Takaichi won the party’s leadership race, increasing fears of new fiscal stimulus and a more dovish tone from the Bank of Japan.
The U.S. Dollar Index climbed 0.3% to 98.9, reaching its highest level in two months. Investors turned to safe-haven assets as negotiations over a funding deal stalled. The ongoing shutdown, now entering its second week, continues to cloud the outlook for U.S. data and Federal Reserve policy.
With key reports delayed, traders are now focused on the minutes from the Fed’s recent meeting and upcoming comments from Chair Jerome Powell later this week. Across Asia, risk aversion and a strong dollar weighed on most regional currencies.
The Singapore dollar (USD/SGD) edged up 0.2%, and the South Korean won (USD/KRW) rose 0.3%. The Chinese yuan (USD/CNH) was flat, while the Indian rupee (USD/INR) moved slightly higher. The Australian dollar (AUD/USD) fell 0.3%.
Yen Weakens After Takaichi Victory
The yen slipped to its lowest level since mid-February. The USD/JPY pair rose as much as 0.5% to 152.6 yen, bringing weekly gains to nearly 3.5%.
Takaichi’s win fueled expectations of a return to aggressive fiscal policies similar to the “Abenomics” era. Investors reduced bets on further Bank of Japan tightening, suggesting that monetary policy could remain loose for longer.
Japanese government bond yields climbed as markets priced in the potential for higher fiscal spending. Analysts at MUFG noted that markets have now ruled out any BoJ rate hikes for this year, seeing the next move possibly in March 2026.
They also said that weak wage data and comments from Takaichi’s advisers opposing near-term tightening are keeping pressure on the yen.
RBNZ Surprises With 50-Point Cut
The New Zealand dollar (NZD/USD) dropped nearly 1% to $0.57, marking a six-month low. The Reserve Bank of New Zealand shocked markets with a 50-basis-point rate cut to 2.50%, double the expected move.
The RBNZ said the decision aims to support slowing economic growth and left the door open to further easing in the months ahead.
