Most Asian currencies kept to a tight range on Wednesday as mixed signals on the U.S.-Israel war with Iran and caution ahead of key U.S. inflation data kept traders to the sidelines.
The Australian dollar outperformed, surging to a near four-year high amid increasing confidence that the Reserve Bank of Australia will raise interest rates next week.
The Japanese yen lagged after a soft producer inflation figure raised more questions over near-term rate hikes by the Bank of Japan.
The dollar index and dollar index futures fell slightly in Asian trade, with the greenback stalling in anticipation of more cues on the U.S. economy. Consumer price index inflation data for February is due later on Wednesday, although it is unlikely to reflect the energy market shocks from the Iran war.
While the dollar had initially risen with the onset of the Iran conflict, it stalled this week amid conflicting signals on when the war could end.
Australian dollar hits near 4-yr high on RBA rate hike bets The Australian dollar was the best performer in Asia, with the AUD/USD pair rising as much as 0.7% to $0.7175– its strongest level since mid-2022.
The currency was boosted by increasing confidence that the RBA could raise rates as soon as next week, especially as it grapples with increasing uncertainty over energy-fueled inflation stemming from the Iran conflict.
Deputy RBA Governor Andrew Hauser said on Tuesday that there will be a “genuine” debate when the bank meets next week whether or not to raise interest rates.
Westpac analysts said the RBA is now expected to hike rates by 25 basis points in both March and May, citing inflationary risks from the Iran crisis.
“The effect of higher oil prices on headline inflation is large but temporary. The RBA Monetary Policy Board will nevertheless feel compelled to react, especially given the hit to confidence and financial markets has so far not been severe,” Westpac Chief Economist Luci Ellis wrote in a note.
Ellis added that the temporary nature of the energy shock still kept the possibility of a hold next week.
Asia FX grapples with mixed signals on Iran conflict Broader Asian currencies largely lagged, remaining in a tight range as markets parsed mixed signals on the Iran war.
The Japanese yen’s USD/JPY pair rose 0.1% and back above 158 yen, after producer price index inflation data for February read cooler than expected. The print, which comes ahead of a widely expected drop in CPI inflation, sparked further doubts over the BOJ’s capacity to hike rates in the near-term.
The yen took fleeting support from an upward revision in gross domestic product growth in the fourth quarter.
The Singapore dollar’s USD/SGD pair fell 0.1%, while the South Korea won’s USD/KRW fell 0.3%, reversing course after rising sharply this week.
The Chinese yuan’s USD/CNY pair fell 0.1% following another strong midpoint fix from the People’s Bank, while the Indian rupee’s USD/INR pair was flat above 92 rupees.
