Most Asian currencies weakened on Thursday, with the yen falling to a near one-month low after the Bank of Japan kept interest rates unchanged and signaled a cautious outlook.
However, the primary pressure on Asian currencies came from a stronger dollar, which surged to a more than two-year high following the Federal Reserve’s decision to reduce its forecast for interest rate cuts next year.
The New Zealand dollar also struggled, hitting a two-year low after GDP data revealed the country had entered a recession in the September quarter.
Yen Weakens, USD/JPY Hits Near 1-Month High After BOJ Holds Rates The Japanese yen extended its decline on Thursday, continuing the weakness from the previous day after the BOJ decided to hold rates steady in a nearly unanimous vote.
The USD/JPY pair rose by 0.3%, surpassing 155 yen for the first time since late November.
The BOJ’s decision to keep rates unchanged, coupled with a cautious 2025 outlook, came amid rising inflation and slow economic growth in Japan. While the decision aligned with a Reuters poll, it disappointed some investors who had hoped for a rate hike in December. The central bank had raised rates twice this year as part of a historic shift away from its ultra-loose policy.
Analysts still anticipate further rate hikes from the BOJ, potentially in January or March.
Dollar at Over 2-Year High as Fed Signals Slower Rate Cuts The dollar index and dollar futures saw a slight increase in Asian trade, following a surge to a more than two-year high on Wednesday.The greenback’s rally was primarily driven by the Federal Reserve. While the central bank did reduce rates by 25 basis points on Wednesday, it signaled a much slower pace of rate cuts in 2025, due to persistent inflation and the resilience of the U.S. economy.
The Fed halved its rate cut forecast for 2025, now projecting just two 25 basis point cuts, compared to the previous expectation of four.
New Zealand Dollar Drops as Country Enters Recession The New Zealand dollar’s NZD/USD pair plummeted to a more than two-year low on Thursday, following GDP data showing the country had entered a technical recession in the September quarter.
GDP contracted 1.5% year-on-year, significantly worse than the expected 0.4% decline. This marked the second consecutive quarter of negative GDP, confirming the recession.
The disappointing data led to increased calls for additional rate cuts by the Reserve Bank of New Zealand (RBNZ). The RBNZ had already reduced rates by 125 basis points in 2024 and has indicated further easing to support the economy.
Broader Asian Currencies Struggle Amid Hawkish Fed Signals Other Asian currencies also faced steep losses against the U.S. dollar, following the Fed’s hawkish stance.
A slower pace of rate cuts is unfavorable for Asian markets, as the widening rate differential between the dollar and regional currencies is likely to benefit the greenback in the months ahead.
The Indian rupee was among the worst performers recently, with the USD/INR pair rising to a new record high above 85 rupees on Thursday.The Australian dollar’s AUD/USD pair gained 0.2% after dropping to a more than two-year low.
The Chinese yuan’s USD/CNY pair climbed 0.3%, reaching its weakest level since September 2023. The yuan faced additional pressure from expectations of looser monetary policies in China, as the government signaled further stimulus measures to boost growth.
The South Korean won’s USD/KRW pair dropped 0.4% after hitting its highest level in nearly 15 years, with ongoing political turmoil in the country contributing to the won’s weakness.
The Singapore dollar’s USD/SGD pair edged up 0.1%.
