Asia FX Remains Muted as Fed Cues Approach; Aussie Rises Ahead of RBA Meeting

Most Asian currencies traded within a narrow range on Monday, while the dollar stabilized after recent declines, as traders awaited further insights regarding the Federal Reserve’s actions and U.S. inflation data.

The Australian dollar emerged as one of the stronger performers, gaining ground ahead of an upcoming Reserve Bank of Australia meeting, where a hawkish tone is anticipated.

Trading volumes in the region were subdued due to a holiday in Japan. However, the yen weakened, retreating further from a nine-month peak reached last week, with its exchange rate increasing by 0.3% to 144.32 yen against the dollar.

Excluding the yen, many Asian currencies retained last week’s gains following a 50 basis point interest rate cut from the Fed.

Australian Dollar Strengthens Ahead of RBA Meeting

The Australian dollar saw a 0.3% increase in anticipation of hawkish signals from the Reserve Bank of Australia on Tuesday. The central bank is expected to maintain steady interest rates; however, persistent inflation and recent labor market strength are likely to encourage a more aggressive stance. Additionally, the RBA is anticipated to indicate that interest rates will remain elevated for an extended period, which should support the Australian dollar, currently trading near a 10-month high.

Dollar Stabilizes as Traders Await Fed and Inflation Updates

The dollar index and dollar index futures registered slight gains during Asian trading, recovering after last week’s losses. Following the Fed’s interest rate cut, a new easing cycle is expected, potentially resulting in a total decline of up to 125 basis points this year. Nonetheless, overall losses in the dollar remain constrained, as the Fed has communicated that neutral rates will be significantly higher than in previous years.

Further insights from the central bank are expected this week, with a number of Fed officials, including Chair Jerome Powell, scheduled to speak in the coming days. The release of the PCE price index data, the Fed’s preferred gauge of inflation, is also awaited this Friday and is likely to provide additional context for the Fed’s rate-cutting strategy.

Other Asian currencies showed little movement within a low range. The Chinese yuan experienced a slight decline after the People’s Bank of China reduced its 14-day repo rate to loosen monetary policy further and stimulate economic growth.

Meanwhile, the South Korean won appreciated by 0.3%, and the Singapore dollar rose by 0.2%. The Indian rupee also saw a modest increase of 0.1%, though it remained below recent record highs.