Asian Currencies Trade Mixed as Yen Remains Under Pressure
Asian currencies traded mixed on Tuesday as the US dollar held steady, while the Japanese yen remained under pressure due to investors assessing the Bank of Japan's recent policy shift and the prospect of further rate increases.
The Japanese yen weakened after the BOJ's September rate decision but stabilized when authorities conducted a rate check, which markets often view as a precursor to foreign-exchange intervention. According to DBS FX & Credit Strategist Chang Wei Liang, 'the yen remains significantly undervalued' despite earlier joint US-Japan interventions and the BOJ's 25-basis-point rate hike in September.
Japan has significant capacity to intervene, with around $1 trillion in foreign-exchange reserves accumulated while previously working to curb yen strength. Higher oil prices also put pressure on energy-importing economies like India, where the rupee remains under pressure. The South Korean won strengthened sharply due to markets awaiting Reserve Bank of Australia Governor Michele Bullock's fireside chat later Tuesday.
Markets are pricing about a 90% probability of a rate hike next week, which would be the fourth increase this year. Bullock is expected to strike a hawkish tone. The Chinese yuan remained firm after strengthening to more than a 3-1/2-year high against the dollar on Monday.