Dollar Strengthens, Yen Weakens Amid BOJ Policy Shift and Oil Price Volatility

The US dollar strengthened modestly on Tuesday, while Asian currencies traded mixed, and the Japanese yen weakened further as investors assessed the Bank of Japan's recent policy shift.

The yen remains significantly undervalued despite earlier joint U.S.-Japan interventions and the BOJ's 25-basis-point rate hike in September. Markets had been disappointed by the BOJ's reluctance to signal a faster pace of tightening, with two board members dissenting from the decision.

Oil prices remain a major variable for import-dependent currencies such as the Indian rupee, which is hovering around $100 a barrel ahead of potential U.S.-Iran talks at the United Nations General Assembly this week. The Reserve Bank of India may further increase interest rates to combat higher energy costs and balance of payments pressure.

The Australian dollar was near $0.7123 as markets awaited Reserve Bank of Australia Governor Michele Bullock's fireside chat later Tuesday, with a 90% probability of a rate hike priced in for next week.