Asian currencies generally moved higher on Wednesday as market participants assessed the consequences of fresh U.S. trade measures and reacted to key domestic inflation data out of Australia.
The U.S. Dollar Index fell 0.1% in Asian trade, and U.S. Dollar Index futures were trading 0.1% lower as of 00:24 (05:24 GMT). Most regional currencies posted modest gains against a softer greenback as traders parsed how new U.S. tariffs and local inflation readings could alter monetary and trade dynamics.
U.S. tariffs in focus
A 10% global tariff announced by U.S. President Donald Trump took effect on Tuesday. Markets are preparing for the possibility that this tariff could be raised to 15%. The president has also cautioned trading partners that countries failing to adhere to newly negotiated trade agreements could face further measures, warning that those who "do not comply" might encounter additional actions.
Commenting on the tariff level, a MUFG analyst wrote: "At this level, most ASEAN economies would benefit at the margin, given it would be somewhat lower than their prevailing reciprocal tariff rates, though trade uncertainty remains." The note highlighted that while the tariff could be relatively favorable for some ASEAN exporters on a margin basis, broader uncertainty around trade policy persists.
Regional currency moves
- The South Korean won led gains in the region as the USD/KRW pair slid 0.8%.
- China’s onshore dollar-yuan pair, USD/CNY, edged down 0.2%.
- The Singapore dollar strengthened with USD/SGD falling 0.2%.
- The Indian rupee was largely unchanged with USD/INR trading flat.
Aussie jumps on hotter inflation
The Australian dollar climbed, with AUD/USD rising 0.7% after domestic inflation data for January exceeded forecasts. Headline inflation increased 3.8% year-on-year in January, unchanged from December and above market expectations. The Reserve Bank of Australia’s preferred trimmed-mean core inflation measure rose to 3.4%, reaching its highest level in over a year. Those figures prompted markets to raise the probability of a potential rate hike in May.
Yen reaction and policy concern
USD/JPY edged down 0.1%, remaining near a two-week high. Media reports noted that Prime Minister Sanae Takaichi expressed concerns about further interest rate increases during a meeting with Bank of Japan Governor Kazuo Ueda. Those reports have fed speculation that political resistance could limit the Bank of Japan’s ability to tighten policy.
On the outlook for USD/JPY, a MUFG analyst wrote: "There is likely continued two-way volatility for USDJPY. Indeed, as the yen weakens, there is a risk of FX intervention that could help contain the pace of currency depreciation."
Across Asian markets, the immediate reaction to both U.S. tariff changes and domestic inflation prints has been measured. Traders appear to be balancing the implications of trade policy shifts for regional trade flows with central bank expectations driven by fresh domestic data.