Most Asian currencies firmed on Tuesday, with the Indian rupee recovering sharply from recent record lows after Washington and New Delhi announced a long-awaited trade deal.
The Australian dollar rallied after the Reserve Bank of Australia raised interest rates as expected, with higher inflation and growth forecasts from the central bank sparking bets on more increases this year.
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Other Asian currencies also firmed marginally, but were nursing losses in recent sessions, especially after the dollar rallied on U.S. President Donald Trump nominating Kevin Warsh as the next Federal Reserve chairman.
Indian rupee hits 2-½ week high on US trade deal The Indian rupee was a standout performer on Tuesday, with the USD/INR pair falling as much as 1.5% to its lowest level since mid-January.
The rupee surged after the U.S. and India announced a trade deal on Monday, under which Washington will slash its tariffs on New Delhi to 18% from 50%.
In exchange, India will further open up its markets, and will also curb its purchases of Russian oil.
Trump announced the deal in a social media post. But he did not provide any further details on the agreement, such as when it will take effect and just what trade concessions India will make.
Aussie upbeat as RBA hikes rates, forecasts
The Australian dollar’s AUD/USD pair surged as much as 1%, blowing past the 0.7 level after the RBA hiked rates by 25 basis points as expected.
The central bank also hiked its growth and inflation forecasts for the year, stating that inflation was now expected to remain above its 2% to 3% annual target until at least 2027.
While the central bank did not explicitly signal future rate hikes, it did acknowledge that markets were pricing in at least one more raise this year.
Governor Michele Bullock also noted that Tuesday’s hike was driven by the RBA viewing monetary policy as not being restrictive enough, and that the bank will continue to work towards bringing down inflation and maintaining maximum employment.
Markets were seen ramping up expectations for more rate hikes by the RBA, especially with inflation seen remaining above its forecasts this year.
Asia FX pressured by dollar rebound Broader Asian currencies drifted higher on Tuesday, but were nursing deep losses in the past two sessions, especially as the dollar recovered.
The dollar index and dollar index futures both fell about 0.1% in Asian trade, but were sitting at an over one-week high as markets priced in a less dovish outlook for monetary policy under Warsh.
Strength in the dollar pressured more regional units, with the Japanese yen’s USD/JPY pair trading back above 155 yen. The yen was also pressured by uncertainty over whether Japanese authorities will intervene to support the battered currency.
The South Korean won’s USD/KRW pair fell 0.3% after consumer inflation data for January read slightly softer than expected.
The Chinese yuan’s USD/CNY pair fell 0.1%. The yuan was a major outlier among Asian currencies in recent weeks, as a series of strong fixings put the currency at its strongest level since mid-2023.
The Taiwan dollar’s USD/TWD par was flat, while the Singapore dollar’s USDSGD pair fell slightly.
