Investing.com-- Most Asian currencies edged higher on Wednesday as investors were cautious amid the ongoing Federal Reserve policy meeting, where commentary on inflation will be crucial in light of recent U.S. tariff concerns.
While the Fed is widely expected to hold rates steady on Wednesday, its commentary on inflation and future rates will be critical for currency markets.
The U.S. dollar remained resilient, supported by expectations of slower rate cuts and the lingering impact of President Donald Trump's tariff policies, which continue to weigh on regional currencies.
The US Dollar Index was largely unchanged in Asian trading on Wednesday, after jumping 0.5% on Tuesday. Dollar Index Futures were also muted.
Investors cautious ahead of Fed rate decision, inflation comments in focus
Gains in Asian currencies were limited on Wednesday as investors typically remain cautious ahead of a big global event like the Fed rate decision. This was reflected by marginal moves in most regional currencies.
They faced additional pressure from uncertainty around Trump’s tariff policies. Trump is still expected to implement a 25% tariff on imports from Canada and Mexico starting February 1, with potential additional tariffs on Chinese goods.
The Chinese yuan’s offshore pair USD/CNH inched 0.1% lower, while onshore markets were shut for the Lunar New Year holiday.
The Japanese yen’s USD/JPY pair edged down 0.1%. Inflation data from Tokyo is scheduled for release on Friday.
The South Korean won’s USD/KRW pair was largely unchanged amid political uncertainties in the country.
The Singapore dollar’s USD/SGD pair ticked 0.1% lower, while, the Indian rupee’s USD/INR pair was largely unchanged.
The recent selloff in U.S. tech stocks sparked by Chinese AI startup DeepSeek, has also contributed to a cautious market sentiment, leading to broader risk aversion.
Bucking the regional trend, the Indonesian rupiah's USD/IDR pair jumped 0.5%.
Aussie dollar weak after soft inflation data sparks rate-cut bets
The Australian dollar’s AUD/USD pair inched 0.2% lower on Wednesday, in line with the regional trend, while softer domestic inflation data further put downward pressure.
Australia's CPI inflation rate declined to its lowest level in nearly four years, with the annual rate dropping to 2.4% in the December quarter, down from 2.8% in September. This decrease was primarily driven by a reduction in electricity prices over the year, attributed to federal and state energy bill rebates.
The trimmed mean, a key measure of core inflation, rose by just 0.5% in the fourth quarter, bringing the annual pace down to 3.2%, slightly below expectations of 3.3%.
This moderation in core inflation suggests that underlying price pressures are easing.
Though the core inflation remains above the Reserve Bank of Australia’s target range of 2%-3%, it raised expectations of a near-term rate cut. The RBA will meet on February 18 to decide on its interest rates.