Asia FX muted amid Fed jitters, Australian dollar boosted by RBA

By Ambar Warrick

Investing.com -- Most Asian currencies moved little on Tuesday in anticipation of an address by Federal Reserve Chair Jerome Powell, while the Australian dollar shot up after the Reserve Bank raised interest rates and flagged more hikes in store.

The Australian dollar jumped 0.7% to $0.6929, coming close to the key 0.7 level against the greenback. The Reserve Bank of Australia raised interest rates by 25 basis points as expected, and flagged more hikes in store as it combats runaway inflation.

Broader Asian currencies were muted in anticipation of more economic cues from Powell, who is set to talk at the Economic Club of Washington D.C. later in the day. The Fed Chair’s comments on inflation and monetary policy will be closely watched, after stronger-than-expected nonfarm payrolls data boosted the dollar and Treasury yields last week.

The greenback lost some ground against a basket of currencies on Tuesday, with the dollar index and dollar index futures down 0.1% each. But both instruments retained a bulk of gains made since Friday, following the payrolls data.

The payrolls data saw markets ramping up their expectations for more Fed rate hikes this year, which dampens the outlook for Asian currencies as the gap between risky and low-risk yields narrows.

Among regional currencies, the Chinese yuan rose 0.1%, while the South Korean won added 0.4%.

The Japanese yen rose 0.3% as media reports fueled speculation over who the next Bank of Japan Governor will be. Reuters reported that the candidates to succeed incumbent governor Haruhiko Kuroda will be presented by next week.

Kuroda’s successor faces the daunting task of balancing the BOJ’s ultra-loose monetary policy against increased inflation and market expectations for a hawkish pivot. But the yen has benefited from speculation over an eventual hawkish tilt by the bank.

Risk-heavy Southeast Asian currencies were the worst performers on Tuesday, with the Malaysian ringgit and Indonesian rupiah sinking 1% and 0.7%, respectively.

The Philippine peso tumbled 0.9% even as consumer price index inflation read much higher than expected for January. While the reading is expected to invite more interest rate hikes by the Philippine central bank, it also portends more pressure on the archipelago’s economy.

The Indian rupee was muted as markets awaited a Reserve Bank of India meeting on Wednesday. The central bank is expected to hike interest rates one last time before announcing a pause to its current rate hike cycle.