Most Asian currencies and the U.S. dollar remained largely unchanged on Wednesday, as traders awaited further clarity on whether a fragile U.S.-brokered ceasefire between Israel and Iran would hold.
The Australian dollar also showed little movement, despite a softer-than-expected inflation report that added to growing expectations of more interest rate cuts by the Reserve Bank of Australia (RBA).
While some regional currencies posted modest gains earlier in the week, the dollar weakened after President Donald Trump announced the ceasefire on Monday evening.
The greenback also faced pressure from increased market speculation that the Federal Reserve could lower interest rates, despite Fed Chair Jerome Powell pushing back against such expectations. Trump, however, renewed his call for rate cuts on Tuesday.
In currency pairs, the Japanese yen slightly strengthened, with USD/JPY down 0.1%. The Chinese yuan (USD/CNY) held steady. The South Korean won weakened, with USD/KRW rising 0.3%, while the Singapore dollar (USD/SGD) and Indian rupee (USD/INR) traded flat.
Australian Dollar Steady Despite Sharp Drop in CPI
The AUD/USD pair remained largely unchanged, even as Australia’s May inflation data came in much lower than forecast. This followed two days of gains for the Australian dollar, driven by improved risk sentiment.
Headline inflation fell to a seven-month low, while the trimmed mean — a key measure of core inflation — dropped to its lowest level since late 2021. The soft data pointed to a continued slowdown in inflation, giving the RBA more room to pursue additional rate cuts.
The inflation release followed weak employment data last week, further suggesting a cooling Australian economy. The RBA has already reduced rates by 50 basis points this year and emphasized its commitment to a data-dependent approach to policy.
Dollar Holds Narrow Range Amid Geopolitical Pause, Fed Speculation
The U.S. dollar index and its futures edged slightly lower in Asian trade on Wednesday, extending sharp losses from the prior session.
After initially strengthening on safe-haven flows following U.S. strikes on Iranian targets over the weekend, the dollar’s gains were undone by Trump’s ceasefire announcement. Though he later criticized both Israel and Iran for allegedly breaching the deal, the two nations appeared to have paused their aerial attacks by Wednesday morning.
Market focus has now turned to whether the ceasefire will endure.
On the monetary policy front, the dollar faced downward pressure from speculation that the Fed could cut rates as soon as July. However, CME FedWatch data showed that most market participants still expect rates to remain unchanged.
Fed Chair Powell, in his congressional testimony Tuesday, downplayed the chances of near-term rate cuts, citing risks of renewed inflation due to Trump’s proposed trade tariffs. Meanwhile, Trump continued his public criticism of the Fed, arguing that interest rates should be lowered by at least 200 to 300 basis points.
