Most Asian currencies edged higher on Tuesday, buoyed by optimism over potential stimulus measures from China, while the Australian dollar saw a sharp decline after the Reserve Bank of Australia (RBA) maintained its interest rates and adopted a less hawkish tone.
Australian Dollar Weakens Following RBA Decision
The Australian dollar (AUD/USD) dropped 0.7%, nearing a four-month low, after the RBA kept its benchmark interest rate at 4.35% during its December policy meeting. The decision was based on persistent underlying inflation and a tight labor market.
The central bank noted some easing in inflationary pressures and expressed growing confidence that inflation was moving toward its target range. However, it maintained that inflation would likely only fall within its 2%-3% target range by 2026.
The RBA’s tone was perceived as slightly dovish, particularly in light of recent GDP data showing significant growth deceleration in the September quarter. ANZ analysts described the decision as a “dovish step,” reaffirming their projection that the RBA would begin cutting rates by May 2025.
Chinese Yuan Strengthens on Stimulus Hopes
The offshore Chinese yuan (USD/CNH) slipped 0.2%, while the onshore yuan (USD/CNY) ticked up 0.1%, supported by signals of further fiscal and monetary easing. During a Politburo meeting on Monday, the Chinese government committed to implementing more proactive fiscal stimulus and moderately looser monetary policies in 2025.
Limited Gains Ahead of U.S. CPI Data
Gains in Asian currencies were capped by caution ahead of a key U.S. inflation report, which could offer additional clarity on the Federal Reserve’s rate outlook ahead of its meeting next week.
Regional currencies found support amid optimism for improved economic activity in China, with attention shifting to the Central Economic Work Conference starting Wednesday, expected to provide further insight into planned stimulus measures.
Mixed Signals from China
China’s trade data for November fell short of expectations. While the trade balance improved, both exports and imports came in weaker than anticipated, dampening sentiment slightly.
Performance of Regional Currencies
- The Singapore dollar (USD/SGD) dropped 0.2%, while the Philippine peso (USD/PHP) remained largely flat.
- The South Korean won (USD/KRW) eased slightly after gaining as much as 1% in the previous session, supported by government efforts to stabilize local markets amidst a political crisis that had weighed on the currency.
- The Thai baht (USD/THB) declined 0.3%, while the Indian rupee (USD/INR) saw minimal movement.
US Dollar Steady Ahead of Inflation Data
The US Dollar Index and US Dollar Index Futures were mostly unchanged during Asian trade as markets awaited the November consumer price index (CPI) report due Wednesday. The data is expected to provide further clarity on the Federal Reserve’s policy direction.
The Fed is widely anticipated to cut rates by 25 basis points at its meeting next week.
