Asia FX Falls With Fed Meeting On Tap

Most Asian currencies declined on Tuesday, as traders remained on edge ahead of the upcoming Federal Reserve meeting, while the Japanese yen (USDJPY) weakened sharply after the historic interest rate hike by the Bank of Japan, boosting the dollar. The uncertainty from the Federal Reserve and cautious signals from the Bank of Japan kept markets largely tilted towards the dollar.

The yen plummeted sharply after the Bank of Japan raised interest rates for the first time in 17 years, with the USDJPY pair rising to 150 yen. The Bank of Japan raised interest rates by 0.1%, bringing them into neutral territory after nearly a decade of negative interest rates. The bank also signaled the end of yield curve control policies and asset purchases.

The Australian dollar also declined on Tuesday, as the AUDUSD pair fell by 0.4% after the Reserve Bank of Australia kept interest rates steady, but took a less hawkish tone than expected by the markets. The Reserve Bank of Australia did not explicitly warn that interest rates could rise to combat stubborn inflation, instead providing largely ambiguous signals about the persistence of tight monetary policy to offset high price pressures.

The dollar index and futures for the dollar index rose by about 0.2%, reaching the highest level in almost two weeks in anticipation of the Federal Reserve’s decision on Wednesday. While the central bank is widely expected to keep interest rates unchanged, traders were cautious about a potentially more hawkish stance than feared, especially after hotter-than-expected inflation readings over the past couple of months.

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