Asian forex weakens; Australian dollar performs strongly in February, yen remains under pressure

Investing.com - On Friday, most Asian currencies weakened as the market interpreted complex signals about the region’s interest rate outlook. The Australian dollar is expected to perform strongly in February, while the Japanese yen remains under pressure.

After Beijing lowered the key foreign exchange reserve requirement ratio to promote cheaper dollar purchases, the yuan weakened, although it remains near a three-year high.

The US dollar index and dollar futures declined about 0.1% during Asian trading hours. The dollar rose 0.7% in February, supported by some safe-haven demand and uncertainty over the interest rate path.

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Yen remains flat after weak Tokyo CPI, posts a loss in February

On Friday, USD/JPY fell 0.2%, with the yen gaining 0.7% in February.

The yen’s weakness stems from growing doubts about when the Bank of Japan will raise interest rates next — the soft consumer price index (CPI) data for Tokyo in February further deepened these concerns.

This data is often seen as a barometer for nationwide inflation, showing core CPI falling below the Bank of Japan’s 2% annual target for the first time in nearly four years — a trend that could limit the central bank’s plans for further rate hikes.

The yen weakened in February amid market doubts about the impact of Prime Minister Fumio Kishida’s stimulus and tax cut plans on public finances. After his ruling coalition won an outright majority in Japan’s House of Representatives elections, Kishida was seen as having a clear path to implement his fiscal policies.

RMB weakens after PBOC lowers foreign exchange risk reserve ratio

On Friday, following the People’s Bank of China (PBOC) removing some forward contracts’ key foreign exchange risk reserve ratio, the USD/CNY exchange rate rose 0.2% — making it cheaper to buy dollars in China.

In recent months, the yuan has appreciated significantly against the dollar, partly due to exporters selling dollars amid strong trade surpluses with the US.

However, the sharp appreciation of the yuan is unfavorable for Chinese exporters, as it reduces their overseas sales revenue. The move on Friday suggests the central bank may be trying to limit the yuan’s overall appreciation.

On Thursday, the yuan approached a three-year high.

Australian dollar expected to rise in February amid hawkish RBA outlook

On Friday, AUD/USD rose 0.25%, making it one of the best-performing currencies in Asia in February.

The Australian dollar is expected to rise 2.3% this month, mainly driven by the increasingly hawkish outlook of the Reserve Bank of Australia (RBA).

The central bank raised interest rates by 25 basis points earlier this month and pledged to hike further if inflation does not cool down.

Earlier this week, January CPI inflation data came in above expectations, further reinforcing market expectations of RBA rate hikes.

On Friday, most other Asian currencies weakened. The Korean won USD/KRW rose slightly, but declined 1.3% in February.

The Indian rupee USD/INR stabilized after breaking above 91 rupees, but still fell 0.8% in February, after a sharp rally on the back of the US-India trade agreement.

The Singapore dollar USD/SGD remained flat, with a 0.7% decline in February.

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