Most Asian currencies strengthened on Wednesday as the US dollar remained close to a six-week low.
The Indian rupee extended its recent recovery after the Reserve Bank of India kept interest rates unchanged, as markets had widely expected.
Meanwhile, lower oil prices and renewed hopes for US-Iran diplomacy supported several currencies across the region.
US Dollar Remains Under Pressure
The US Dollar Index was little changed at 99.80 by 00:57 ET, or 04:57 GMT.
Earlier, the index had fallen to its weakest level in around six weeks.
The dollar came under pressure as concerns about the Middle East eased. Investors became more hopeful that renewed diplomatic efforts between the United States and Iran could reduce regional tensions.
These developments also pushed oil prices lower, which helped several energy-importing Asian economies.
RBI Keeps Interest Rates Unchanged
The Reserve Bank of India left its benchmark repo rate unchanged at 5.25%.
All six members of the Monetary Policy Committee voted to maintain the current rate.
The central bank pointed to rising inflation, global uncertainty and resilient domestic economic growth. It also retained its neutral policy stance.
According to the RBI, the recent increase in inflation was mainly driven by food and fuel prices. However, broader underlying inflation remained relatively moderate.
Indian Rupee Extends Its Recovery
The Indian rupee continued to strengthen following the RBI decision.
The USD/INR pair fell around 0.3% to 95.06 rupees per dollar.
A sharp decline in crude oil prices also supported the currency.
India imports a large share of its energy needs. Therefore, lower oil prices can reduce import costs and improve the country’s trade position.
The rupee has now recovered almost 2% from its recent lows.
Falling Oil Prices Support the Rupee
Brent crude prices declined sharply during the previous two sessions.
The drop followed growing optimism that diplomatic efforts involving Washington and Tehran could reduce tensions in the Middle East.
Lower oil prices are generally positive for the Indian rupee because they reduce the amount of foreign currency needed to pay for energy imports.
This can ease pressure on India’s current account and support demand for the local currency.
Japanese Yen Holds Intervention Gains
The Japanese yen remained firm after its recent intervention-driven recovery.
The USD/JPY pair fell approximately 0.2% to 157.5 yen per dollar.
The yen had strengthened sharply at the end of the previous week following coordinated currency intervention by Japan and the United States.
It was the first joint yen-buying operation involving the two countries in decades.
Intervention Pulls Yen Away From 40-Year Low
The coordinated action helped the yen recover from a 40-year low against the dollar.
US Treasury Secretary Scott Bessent said Washington was prepared to take the necessary steps to support the yen and maintain orderly currency markets.
The statement reinforced expectations that officials could intervene again if the Japanese currency experiences another uncontrolled decline.
This possibility may discourage traders from building large positions against the yen.
South Korean Won and Singapore Dollar Advance
Other regional currencies also benefited from the weaker dollar.
The USD/KRW pair fell approximately 0.4%, indicating gains for the South Korean won.
The Singapore dollar also strengthened slightly, with USD/SGD moving around 0.1% lower.
A softer US dollar often supports Asian currencies by reducing pressure from capital outflows and dollar-denominated debt.
Chinese Yuan Edges Higher
The Chinese yuan recorded a modest gain during the session.
The onshore USD/CNY pair fell around 0.1%.
However, weaker economic data limited the currency’s advance.
A private survey showed that China’s services sector expanded at its slowest pace in 10 months during July as domestic demand weakened.
The report added to concerns that the country’s economic recovery may be losing momentum.
Australian Dollar Posts a Modest Gain
The Australian dollar also moved higher against the greenback.
The AUD/USD pair increased by approximately 0.1%.
The currency often reacts to changes in Chinese economic data because China is one of Australia’s largest trading partners.
However, the broader decline in the US dollar helped offset concerns about weaker Chinese services activity.
Oil Prices Fall for a Third Session
Oil prices declined for a third consecutive session on Wednesday.
Qatar said mediators had drafted an interim proposal as they worked to reduce differences between the United States and Iran.
Qatar has played an important role in regional diplomatic efforts.
Signs of progress toward an agreement reduced fears of supply disruptions and placed further pressure on crude prices.
US Jobs Data Could Drive the Next Dollar Move
Investors will now turn their attention to the upcoming US nonfarm payrolls report.
The employment data could influence expectations for the Federal Reserve’s next interest-rate decision.
A stronger-than-expected report may support the dollar by reducing expectations for monetary easing.
By contrast, weaker employment growth could increase speculation that the Federal Reserve will lower rates.
Asian Currencies Benefit From Softer Dollar and Oil Prices
Asian currencies broadly advanced as the dollar remained near a six-week low.
The Indian rupee benefited from the RBI’s decision to hold interest rates, while lower crude prices provided additional support.
The Japanese yen retained much of its recent intervention-driven recovery. Meanwhile, the South Korean won, Singapore dollar, Chinese yuan and Australian dollar also recorded gains.
The next major direction for regional currencies may depend on US employment data, Federal Reserve expectations and further developments in the Middle East.
