Asia FX weakens as dollar recoups some losses, Indian rupee tests record lows

Investing.com-- Most Asian currencies weakened slightly on Wednesday as the dollar recovered from two-month lows, while the Indian rupee tested record lows after the results of the 2024 general elections showed the ruling BJP party did not sweep as expected.

Broader risk sentiment somewhat improved as weak U.S. data fueled bets that the Federal Reserve will eventually begin cutting interest rates. But traders were wary of piling into risk-driven assets in anticipation of more cues on U.S. rates this week. 

The dollar index and dollar index futures rose 0.1% each after sinking to two-month lows earlier. Weak job openings data saw traders further their bets that the Federal Reserve will begin trimming rates in September.

But focus this week was squarely on nonfarm payrolls data for definitive cues on the labor market. 

Indian rupee volatile, USDINR spikes on election shock 

The Indian rupee’s USDINR pair, which represents the number of rupees needed to buy one dollar, shot up to a record high of 85 on Wednesday, before sharply curbing its gains amid some perceived intervention by the Reserve Bank of India.

Volatility in the rupee, and broader Indian markets, came after the results of the 2024 general elections showed the ruling BJP party did not sweep as expected. Instead, the party lost a substantial number of seats to the opposing Indian National Congress.

While Prime Minister Narendra Modi is still set for a third term, on the back of the NDA alliance, a weaker majority for the BJP presents difficulties for Modi in enacting more economic reforms. 

Japanese yen weakens, but wage data heralds strength 

The Japanese yen’s USDJPY pair rose 0.4% on Wednesday after sinking to an over three-week low in overnight trade.

But the currency was primed for more near-term strength, especially after positive wage growth data for April.

Average Japanese cash earnings grew 2.1%, as did overall wage income of employees, with both indicators reflecting the increased wages won by major Japanese labor unions earlier this year.

Strength in wages ties into a more hawkish outlook for the Bank of Japan. The BOJ is expected to scale back some of its asset buying policies at a meeting next week, which bodes well for the yen.

Broader Asian currencies clocked small moves. The Australian dollar’s AUDUSD pair rose 0.2% even as gross domestic product data showed the economy grew less than expected in the first quarter.

But Reserve Bank of Australia Governor Michele Bullock warned that interest rates could still rise if inflation remained sticky. 

The Chinese yuan’s USDCNY pair rose 0.1%, even as private purchasing managers index data showed the country’s services sector grew more than expected. 

The South Korean won’s USDKRW pair fell 0.2%, while the Singapore dollar’s USDSGD pair tread water.