Asian currencies rose slightly Tuesday as the dollar stopped its rise below 20-year highs. The Chinese yuan dropped to a two-year low due to signs of economic weakness.
The Japanese and Indian yen were both up 0.3%, respectively, while the Singapore Dollar rose 0.2%. The New Zealand Dollar performed the best in the Asia-Pacific region with a 0.7% increase after Central Bank Governor Adrian Orr stated that the bank will likely tighten monetary policies further this year.
Related: The Chinese Yuan hits its lowest level in two years as COVID fears a return.
After rallying for seven consecutive sessions, the dollar fell to a 20-year low in Asia. The dollar Index dropped 0.4% to 113.71 while the dollar index futures lost 0.3%.
The dollar’s weakness also enabled currencies from other parts of the world to recover. The British Pound rose 0.9% to a new record low. Meanwhile, the Euro gained 0.4%, recovering from a 22 year low.
Despite concerns about a global recession, sentiment was not affected by further gains in the dollar or U.S. Treasury yields. All asset classes were affected by the weak economic readings that occurred last week. This drove dollar-safety plays to the dollar.
As the gap between high-risk and low-risk debts narrows, rising U.S. rates could also weigh on Asian currencies. After a string of sharp interest rate increases by the Federal Reserve, Asian currencies have seen their value plummet this year.
Recently, the central bank indicated that its benchmark interest rate would end the year at well above 4%.
China’s currency fell 0.2%, trading below its two-year low at 7.16999. The yuan lost 0.2% after data showed that Chinese industrial profits dropped for the second consecutive month in August. This was despite continued disruptions caused by COVID-related lockdowns.
The weakening of the yuan has had a significant impact on Chinese manufacturing activity by increasing import costs and making it more difficult to source raw materials.
Related: The Chinese Yuan leads Asia’s currency decline as the US dollar reaches a 20-year high.
Sentiment towards Asia has been affected by a slowdown in China’s economy this past year, due to its status as a major trade hub for the region.
The government’s lifting of COVID restrictions, and new stimulus measures may help to boost growth.
