Asian Currencies Strengthen as Dollar Slips on Fed Rate Cut Bets
Most Asian currencies moved higher on Thursday, while the U.S. dollar weakened amid rising expectations that the Federal Reserve will cut interest rates in October.
However, further gains across regional currencies were limited by renewed U.S.-China trade tensions. The Australian dollar lagged behind its peers after weak labor data increased speculation of a November rate cut by the Reserve Bank of Australia (RBA).
Investors remained cautious, turning to gold, which hit new record highs on Thursday as market uncertainty grew.
Australian Dollar Dips After Weak Jobs Data
The Australian dollar (AUD/USD) fell 0.3% on Thursday, underperforming other regional currencies.
September’s employment report showed disappointing growth and a surprise jump in the unemployment rate, which reached a four-year high. Data from August was also revised lower, signaling a sharper slowdown in the job market.
The weak figures boosted market confidence that the RBA will move forward with a rate cut in early November to protect employment and support growth. The central bank has repeatedly emphasized that inflation and labor conditions remain key factors in its monetary policy decisions.
Still, some analysts warned that inflation may have turned sticky in the third quarter, possibly prompting the RBA to pause rate cuts. So far this year, the RBA has reduced rates by a total of 75 basis points.
Asian FX Gains as Dollar Retreats
Broader Asian currencies continued their rise on Thursday after recent comments from Fed Chair Jerome Powell increased expectations of a late-October rate cut.
The Japanese yen (USD/JPY) strengthened by 0.2% amid uncertainty surrounding Sanae Takaichi’s leadership after she was elected head of Japan’s ruling Liberal Democratic Party (LDP). Political instability grew as Komeito, a long-time LDP ally, withdrew from the coalition, complicating Takaichi’s path to the prime ministership.
Elsewhere, the South Korean won (USD/KRW) edged up 0.1%, while the Singapore dollar (USD/SGD) rose 0.2%.
The Indian rupee (USD/INR) gained 0.1%, supported by optimism that the U.S. may reduce its 50% trade tariffs on India. President Donald Trump said that Indian Prime Minister Narendra Modi had assured him New Delhi would limit Russian oil imports, following Washington’s recent pressure.
The Chinese yuan (USD/CNY) also strengthened slightly after the People’s Bank of China (PBOC) continued its strong midpoint fixes, helping stabilize the currency despite weak inflation data for September.
Trade friction between Washington and Beijing remains a key market driver after President Trump threatened to impose 100% tariffs on Chinese goods, drawing strong criticism from Beijing.
Dollar Under Pressure Amid Rate Cut Expectations
The U.S. dollar index slipped 0.1%, while futures dropped 0.3% in Asian trading sessions.
Growing market conviction that the Fed will cut rates in October weighed heavily on the greenback. Dovish remarks from Chair Jerome Powell suggested that the central bank may soon end its quantitative tightening program.
Additionally, ongoing concerns over the U.S. economy persisted. The government shutdown showed no signs of resolution, and the Treasury Department warned the stalemate could cost $15 billion per week in lost output.
