Asian currencies weakened on Tuesday as the U.S. dollar gained momentum, driven by concerns over new trade tariffs under Donald Trump’s administration. The Reserve Bank of Australia (RBA) also implemented its first rate cut in over four years, further weighing on regional currencies.
The U.S. Dollar Index, which measures the greenback’s value against major currencies, rose 0.2%, mirroring a similar gain in futures. This rebound comes after the index declined more than 1% last week and dropped over 3% from its early January peak. Investors turned to safe-haven assets amid fears of escalating trade tensions and expectations of prolonged high interest rates in the U.S.
RBA Lowers Rates but Remains Cautious on Further Cuts
The RBA reduced its official cash rate by 25 basis points to 4.10%, responding to moderating inflation and a subdued economic outlook. Recent data showed inflation cooled to 3.2% in the December quarter, suggesting price pressures are easing faster than expected.
Despite this progress, the RBA signaled caution on additional rate cuts, warning that easing monetary policy too soon could disrupt the disinflation process. The central bank’s measured approach aims to balance economic support with efforts to maintain stable inflation.
Following the rate decision, the Australian dollar remained under pressure, with AUD/USD down 0.2% at 0.6347 USD.
Tariff Concerns and Dollar Strength Weigh on Asian Currencies
Analysts at ING noted that “reciprocal” tariffs introduced last week indicate that substantial trade restrictions are likely by the second quarter. They also emphasized that tariffs tend to strengthen the dollar, which had already rallied 10% between October and January.
As a result, most Asian currencies faced downward pressure. The Chinese yuan’s onshore USD/CNY pair remained steady, while the offshore USD/CNH pair rose 0.2%.
The Japanese yen weakened, with USD/JPY up 0.4%, despite strong economic growth data from the fourth quarter. Other Asian currencies also declined:
- South Korean won (USD/KRW): Up 0.2%
- Singapore dollar (USD/SGD): Up 0.3%
- Indonesian rupiah (USD/IDR): Up 0.5%
- Indian rupee (USD/INR): Up 0.1%
- Malaysian ringgit (USD/MYR): Up 0.4%
- Philippine peso (USD/PHP): Up 0.3%
With ongoing trade tensions, a strong dollar, and expectations of prolonged high U.S. interest rates, Asian currencies are likely to remain under pressure in the near term.
