Asian Currencies See Modest Recovery as Dollar Weakens After Trump Delays Canada, Mexico Tariffs
Asian currencies saw a mild rebound on Tuesday, while the dollar edged lower after U.S. President Donald Trump postponed plans to impose trade tariffs on Canada and Mexico.
However, gains in regional currencies remained limited, as Trump’s 10% tariffs on China were still scheduled to take effect later in the day.
Chinese markets stayed closed for the Lunar New Year holiday, though the yuan experienced sharp fluctuations in offshore trading.
Most Asian currencies recouped a significant portion of their losses from the previous session, tracking a weaker dollar. Still, regional markets continued to struggle in recent weeks, weighed down by concerns that U.S. interest rates could stay elevated for longer.
The Japanese yen strengthened, with USD/JPY falling 0.3% to 155.15 after a sharp drop in overnight trade.
The South Korean won (USD/KRW) remained flat, while the Australian dollar (AUD/USD) slipped 0.2%. The Singapore dollar (USD/SGD) was also little changed, and the Indian rupee (USD/INR) hovered near its record high above 87 per dollar.
Chinese Yuan Volatile Ahead of Trump Tariffs
The offshore yuan (USD/CNH) stabilized on Tuesday after briefly surging to a three-week high in the previous session. However, it quickly retreated from those gains following Trump’s decision to delay 25% import duties on Canada and Mexico.
Despite this, Trump is still set to impose 10% trade tariffs on China starting at 00:00 ET (05:00 GMT) on Tuesday.
The White House also indicated that Trump is expected to speak with Chinese President Xi Jinping later this week, potentially laying the groundwork for a diplomatic resolution that could prevent further escalation of the trade conflict.
Yuan Pressured by Trade War Fears Despite Tariff Delay for Canada and Mexico
The yuan faced pressure amid concerns over a potential Sino-U.S. trade war reminiscent of Trump’s first term. While his decision to delay tariffs on Canada and Mexico provided some relief to markets, uncertainty persisted over the possibility of further measures from his administration.
Dollar Dips on Tariff Relief, but Payrolls Anticipation Limits Losses
The dollar index and dollar index futures edged up 0.2% in Asian trading, recovering slightly from sharp losses overnight.
However, further weakness in the dollar was curbed by ongoing concerns that U.S. interest rates could remain higher for longer, particularly after last week’s strong PCE price index inflation data.
The Federal Reserve has indicated that persistent inflation reduces the urgency for rate cuts, which supports the dollar. Additionally, Fed officials have expressed reluctance to adjust policy amid uncertainty over Trump’s economic strategies.
Investor focus now shifts to the upcoming January nonfarm payrolls data, set for release on Friday, which could play a key role in shaping expectations for future interest rate movements.
