Asian currency markets decline, the dollar strengthens due to hawkish Fed minutes; AUD rises on strong employment data

Investing.com - On Thursday, Asian currencies declined, with the Korean won and Indian rupee leading the losses. The US dollar strengthened, and hawkish signals from Federal Reserve policymakers put pressure on regional currencies, while the Australian dollar rose against the trend due to strong domestic employment data.

The US Dollar Index rose 0.1%, after a roughly 0.6% increase overnight. As of 11:56 PM Eastern Time (4:56 AM Beijing Time), US Dollar Index Futures also increased by 0.1%.

Regional currencies face liquidity constraints as well, due to multiple markets being closed for the Lunar New Year holiday, resulting in lighter trading volumes in parts of Asia.

Access advanced Asian forex market insights with analyst commentary on InvestingPro

Fed Minutes Slightly Hawkish, Some Officials Open to Rate Hikes

The latest Federal Reserve meeting minutes show disagreements among officials regarding policy outlook. Several officials indicated that rates may need to stay higher for a longer period, and some are open to further rate hikes amid persistent inflation.

The minutes reinforce expectations that US monetary policy will remain restrictive, putting pressure on high-beta Asian currencies.

The market is currently focused on the upcoming release of the US Personal Consumption Expenditures (PCE) Price Index data on Friday evening, which is the Fed’s preferred inflation indicator to better gauge the path of interest rates.

The USD/KRW currency pair jumped 0.6%, while the USD/INR rose 0.4%.

The offshore Chinese yuan (USD/CNH) increased by 0.2%, and the USD/SGD in Singapore rose slightly by 0.1%.

The USD/JPY currency pair also increased by 0.2%.

Australian Dollar Rises on Strong Employment Data

In contrast, the AUD/USD currency pair rose 0.2%, after data showed Australia’s January unemployment rate remained at 4.1%, indicating that despite slowing employment growth, the labor market remains tight.

This data reinforces the hawkish stance of the Reserve Bank of Australia, which earlier this month raised its cash rate citing persistent inflation and resilient employment conditions.

Markets continue to expect further rate hikes from the RBA this year, providing relative support for the Australian dollar.

This article was translated with the assistance of artificial intelligence. For more information, please see our Terms of Use.