Asian Currencies Tread Water as US Dollar Dips Post-Moody’s Downgrade

The US Dollar Index, tracking the greenback against major currencies, fell 0.4% to 100.45 in early Asian trading on Monday, extending losses after Moody’s downgraded the US credit rating from Aaa to Aa1 late Friday.

The agency cited unsustainable fiscal deficits and a $36 trillion debt pile, rattling investor confidence. Real-time data shows the US Dollar Index hit a session low of 100.42, down 0.9% from its weekly peak, reflecting market unease.

The downgrade has fueled safe-haven demand, pressuring US stock futures, with S&P 500 futures dropping 0.8% and Dow futures shedding 0.6%. Despite the dollar’s retreat, Asian currencies struggled to capitalize, as trade uncertainties and tariff threats kept risk sentiment subdued.

China’s Mixed Data Clouds Yuan Outlook

China's economic data presented a complex picture, with April industrial production rising 6.7% year-on-year, surpassing forecasts of 6.3%, indicating resilience despite US trade tariffs.

However, retail sales grew only 2.3%, missing expectations of 3.1%, highlighting weak domestic demand. The onshore USD/CNY and offshore USD/CNH pairs remained nearly flat, with the yuan trading at 7.105 and 7.108, respectively.

Analysts note that while tariff ceasefire talks could spur activity, China’s growth moderation and trade headwinds may cap yuan gains. The mixed data underscores the challenges facing China’s economy, keeping investors cautious about regional currency prospects.

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Japanese Yen Shines Amid BoJ Rate Hike Speculation

Defying regional lethargy, the Japanese yen strengthened, with the USD/JPY pair falling 0.4% to 145.14. The yen’s rise follows remarks from BoJ Deputy Governor Shinichi Uchida, who affirmed the bank’s intent to raise rates if economic recovery persists despite looming US tariffs.

However, Japan’s economy contracted 0.7% annualized in Q1 2025, worse than the expected 0.5% decline, complicating the BoJ’s tightening plans.

Real-time updates indicate USD/JPY touched 144.70 intraday, reflecting yen strength. The yen’s outperformance highlights its safe-haven appeal amid global uncertainties, though economic weakness may limit BoJ’s policy flexibility.

Did You Know?
The Japanese yen, introduced in 1871, was modeled after the Spanish dollar to modernize Japan’s economy during the Meiji era, replacing a complex system of regional coins.

Asian Currencies Stagnate as Trade Tensions Simmer

Most Asian currencies remained range-bound, with the South Korean won’s USD/KRW pair dipping 0.2% to 1,380.50 and the Singapore dollar’s USD/SGD pair easing 0.1% to 1.3150.

The Indian rupee’s USD/INR pair held steady at 84.05, while the Australian dollar’s AUD/USD pair edged up 0.2% to 0.6415, buoyed by anticipation of the Reserve Bank of Australia’s rate decision.

US Treasury Secretary Scott Bessent’s comments on Sunday, hinting at reinstated tariffs if trade partners fail to negotiate in good faith, added to market caution. With 18 key trading partners in talks, the threat of escalating trade frictions continues to weigh on Asian FX sentiment.

What Lies Ahead for Asian FX?

The week ahead holds critical catalysts, including Eurostat’s inflation revisions and Federal Reserve speeches, which could sway the US dollar’s trajectory.

The Reserve Bank of Australia’s expected rate cut to 3.85% on Tuesday may pressure the Aussie, while Japan’s economic indicators will influence bets on a BoJ rate hike.

As trade tariff talks and China’s economic performance remain in focus, Asian currencies face a delicate balancing act between risk aversion and policy-driven opportunities.