Asian Currencies Muted as USD Retains Strength, Taiwan Dollar Dips

By Ambar Warrick 

Investing.com-- Most Asian currencies kept to a tight range on Thursday as the U.S. dollar remained underpinned by expectations of a hawkish Fed, while the Taiwan dollar fell the most amid continued concerns over a clash with China. 

The Taiwan dollar lost about 0.2% and stayed around two-year lows of 30 to the dollar. An escalation in tensions with China, amid U.S. House of Representatives Speaker Nancy Pelosi’s Taipei visit, has battered the currency this week.

Reports now suggest that China is carrying out cyber attacks on the Taiwan Defense Ministry, and allegedly flying drones over some outlying islands. China had largely opposed Pelosi’s visit, claiming that Taiwan is part of its territory. 

Reports from Chinese state-run media house Xinhua say that the country is planning military drills near the sea border with Taiwan. 

Most other Asian currencies kept to tight ranges on Thursday. The Chinese yuan was largely unchanged at 6.7562, while the Japanese yen paused a recent rally and held around 133.76.

The Australian dollar rose 0.2% and came close to breaking above a key $0.7 level after the country logged a record trade surplus in June. The reading was driven largely by steady demand for Australia’s key coal and iron ore exports. 

Sentiment in currency markets was muted ahead of key U.S. payrolls data on Friday. A strong reading could encourage a sharper interest rate hike by the Federal Reserve later this year. Overnight, hawkish comments from some Fed members also raised expectations of a quicker pace of policy tightening this year, keeping the dollar underpinned.

The dollar index was flat on Thursday after rising 1% so far this week. U.S. Dollar Index Futures were also muted. 

The Indian rupee fell 0.4% ahead of a widely anticipated interest rate hike by the Reserve bank on Friday. The rupee has fallen substantially this year amid rising oil prices.

The Indian central bank has also lagged its Asian peers in tightening policy, which has seen Indian inflation rise to two-year highs. But with Friday’s hike, the Reserve Bank will likely bring interest rates back to pre-pandemic levels.