Asian Currencies Strain as Risk Off Wave Lifts Dollar and Havens

Asian currencies came under renewed pressure today as a sharp risk-off move in global markets pushed investors back into the U.S. dollar and classic safe havens like the yen and Swiss franc.

A tech-led selloff on Wall Street spilled into Asia, knocking regional equities lower and souring appetite for higher risk currencies.

While the yen and franc gained ground as traditional refuges, risk sensitive Asia Pacific currencies such as the Australian and New Zealand dollars weakened, reflecting investors’ desire to cut exposure to cyclicals and commodity linked FX.

The Kiwi slid after soft labor data, while the Aussie stayed on the back foot as traders doubted how much more support the local central bank can offer without reigniting inflation.

The backdrop is a stronger dollar, supported by fading expectations of imminent Fed rate cuts and rising global volatility.

The greenback recently touched a multi month high against several majors after traders slashed the odds of a near term policy easing, citing internal divisions at the Federal Reserve and ongoing uncertainty around the U.S. government shutdown.

Elsewhere in Asia, central banks are being forced to work harder to stabilise their currencies. India’s rupee, for example, only recovered from near-record weakness after what traders described as early, aggressive intervention by the Reserve Bank of India a signal that policymakers are increasingly unwilling to let FX markets move unchecked in a jittery environment.

The latest move is less about local fundamentals and more about global fear and dollar gravity.

As long as U.S. rate cut hopes stay muted and equity volatility remains elevated, Asian currencies especially the higher beta ones will find it hard to mount a lasting comeback.