Asian currencies traded mixed on Tuesday as the U.S. dollar remained broadly stable. Meanwhile, the Japanese yen stayed under pressure as investors assessed the Bank of Japan’s latest policy shift and the possibility of further interest rate increases.
Trading volumes were relatively thin because Japanese markets were closed for a holiday. At the same time, concerns over possible currency intervention helped limit further weakness in the yen.
The U.S. Dollar Index traded near 100.36 and was little changed on the day. The index gained more than 1% last week following the Federal Reserve’s hawkish interest rate increase.
USD/JPY edged 0.1% higher, keeping the yen close to its recent lows. The Japanese currency had weakened following the Bank of Japan’s September policy decision.
Yen Remains Under Pressure as Intervention Risk Grows
The Japanese yen remains significantly undervalued despite previous joint U.S.-Japan interventions and the Bank of Japan’s 25-basis-point interest rate increase in September, according to DBS FX & Credit Strategist Chang Wei Liang.
Investors were disappointed that the BOJ did not provide a clearer signal that monetary tightening could accelerate. The September rate decision was also not unanimous, as two policymakers voted against the move.
The yen weakened after the BOJ announcement. However, it later stabilized after Japanese authorities conducted a rate check.
Currency markets often interpret a rate check as a possible warning that direct foreign-exchange intervention could follow.
Japan also has substantial resources available if authorities decide to intervene again. According to Chang, Japan accumulated around $1 trillion in foreign-exchange reserves during previous efforts to prevent excessive yen appreciation.
As a result, policymakers have considerable capacity to support the currency if yen weakness becomes disorderly.
Higher Oil Prices Put Import-Dependent Currencies in Focus
Brent crude traded close to $100 per barrel ahead of potential U.S.-Iran talks at the United Nations General Assembly this week.
Higher oil prices remain particularly important for the Indian rupee. India depends heavily on imported energy, meaning rising crude prices can increase the country’s import bill and put additional pressure on the currency.
Investors are also assessing whether persistent energy inflation could lead to further interest rate increases from the Reserve Bank of India.
USD/INR traded near 95.80 and was little changed.
Meanwhile, measures introduced by India to strengthen its balance of payments have raised $143.6 billion, according to data released on Monday. These efforts have helped the central bank contain expectations of further rupee depreciation.
Indonesian Rupiah Remains Under Pressure
The Indonesian rupiah also weakened, with USD/IDR rising around 0.3% to 17,874.1.
Currency markets continued to assess the political and economic implications of President Prabowo Subianto’s decision last week to replace Finance Minister Purbaya Yudhi Sadewa with Suahasil Nazara.
Higher oil prices added further pressure because Indonesia remains sensitive to rising energy costs.
Elsewhere in Asia, the South Korean won strengthened sharply. USD/KRW fell around 1.17%.
USD/SGD slipped approximately 0.1%, while USD/MYR gained around 0.1%.
Australian Dollar in Focus Ahead of RBA Comments
The Australian dollar traded near $0.7123 as investors awaited comments from Reserve Bank of Australia Governor Michele Bullock later on Tuesday.
Markets are pricing in roughly a 90% probability of another interest rate increase next week. If delivered, it would mark the fourth rate hike of the year.
Bullock is expected to maintain a relatively hawkish stance as policymakers continue to monitor inflationary pressures.
New Zealand Dollar Gains as Oil Raises Inflation Concerns
The New Zealand dollar climbed to around $0.5735 after Reserve Bank of New Zealand Governor Anna Breman discussed the inflationary impact of higher oil prices.
Breman warned that a sustained increase in crude prices could push inflation somewhat above previous forecasts.
Higher energy prices can feed into transportation, production and consumer costs. Therefore, prolonged oil strength could complicate the outlook for New Zealand monetary policy.
Chinese Yuan Holds Near Multi-Year Highs
The Chinese yuan remained firm after strengthening to its highest level against the U.S. dollar in more than three and a half years on Monday.
The People’s Bank of China recently reduced efforts to restrain yuan appreciation ahead of a meeting between Chinese and U.S. leaders this week.
USD/CNH traded near 6.6953, while the onshore USD/CNY pair remained close to 6.6962.
Overall, Asian currencies showed a mixed performance as investors balanced a steady U.S. dollar, diverging central-bank policies, elevated oil prices and the possibility of currency intervention in Japan.
