Most Asian currencies weakened on Thursday, pressured by a stronger dollar as uncertainty over more U.S.-Iran peace talks and dwindling expectations of interest rate cuts kept traders biased towards the greenback.
Risk-driven Asian currencies retreated across the board, while the dollar benefited from safe haven demand as tensions in the Middle East showed few signs of cooling.
The Japanese yen was an outlier for the day, as reports suggested that the Bank of Japan will leave rates steady next week but signal readiness to hike in the coming months.
Get more cues on the dollar adn the impact of the Iran war by subscribing to InvestingPro
Dollar strong on Iran-driven haven demand, rate outlook The dollar index and dollar index futures rose about 0.1% each in Asian trade, hitting their strongest levels since April 10.
The greenback saw increased safe haven demand as traders fretted over the status of future negotiations between Washington and Tehran, which appeared unlikely after potential talks fell through this week.
Both countries remained at odds over the Strait of Hormuz and a U.S. naval blockade of Iran, with the extension of a ceasefire doing little to quell tensions.
The dollar was also aided by growing confidence that the Federal Reserve will not cut interest rates this year, especially in the face of heightened uncertainty stemming from the Iran conflict.
Kevin Warsh, Trump’s nominee for Fed Chair, told lawmakers he had made no commitments to cut rates, and emphasized on the central bank’s independence. Warsh was viewed as a less dovish pick, given that he has called for the Fed to shrink its balance sheet.
A Reuters poll this week found investors expect the Fed to wait at least six months before cutting interest rates.
Focus on Thursday will be on U.S. weekly initial jobless claims and purchasing managers index data for more cues on the world’s largest economy.
Asia FX weak, yen steady ahead of BOJ meeting next week Most Asian currencies weakened amid continued uncertainty over the Iran conflict. The Japanese yen was an outlier for the day, with the USD/JPY pair hovering around 159.53 yen.
A Reuters report showed growing expectations that the BOJ will leave interest rates unchanged next week, but will signal willingness to hike rates later this year, amid growing concerns over energy-driven inflation from the Iran war.
The yen took some support from stronger-than-expected PMI data for April, which showed manufacturing activity growing sharply despite disruptions from the Iran war.
The South Korean won’s USD/KRW pair rose 0.2%, with the currency taking little support from stronger-than-expected first-quarter gross domestic product data. The print showed the East Asian economy growing sharply on strength in its semiconductor exports.
But growth in other sectors lagged, with private spending in particular remaining muted.
The Singapore dollar’s USD/SGD pair rose 0.1%, while the Chinese yuan’s USD/CNY pair was flat.
The Indian rupee’s USD/INR pair rose 0.2% and back above the 94 rupee level. The currency steadily weakened after the Reserve Bank relaxed some measures aimed at supporting the rupee earlier this week.
The Australian dollar’s AUD/USD pair fell 0.1%, even as PMI data showed an improvement in both manufacturing and services activity in April.
