Asia FX creeps lower amid tariff jitters, dollar weak with Fed succession in focus

Investing.com-- Most Asian currencies weakened slightly on Friday as traders remained on edge over U.S. trade tariffs, while the dollar nursed losses amid increased speculation over the next Federal Reserve Chair. 

U.S. President Donald Trump’s trade tariffs took effect from Thursday, with regional economies facing between 10% to 50% levies on their U.S. exports. While a bulk of the imposed levies were telegraphed by Trump, markets now feared their economic impact.

The dollar index and dollar index futures retreated in Asian trade after logging steep losses earlier this week. 

Bloomberg reported on Thursday that Fed Governor Christopher Waller was the lead candidate to replace Chair Jerome Powell next year.

Waller was one of the two Fed rate-setting members who voted for a rate cut during the central bank’s July meeting, in line with demand for a cut from Trump. 

Bets are growing that the Fed will cut rates by at least 25 basis points in September, especially following a raft of dismal labor market data in the past week. 

Japanese yen weakens on soft data; Tokyo wins some tariff relief 

The Japanese yen weakened slightly on Friday, with the USDJPY pair up about 0.1%.

Household spending data read substantially weaker than expected for June, pointing to a sustained decline in consumer spending.

The print comes just a day after weak average cash earnings data, which showed that Japanese wages and spending were declining after an initial boost earlier this year. Softer spending and wages point to subdued inflation, which in turn gives the Bank of Japan less impetus to hike interest rates in the coming months.

This notion weighed on the yen.

But losses in the yen were limited by Tokyo gaining some relief and clarity from Washington on its trade tariffs. Japan’s top trade negotiator, Ryosei Akazawa indicated on Thursday that the effective U.S. tariff rate on Japanese goods will be capped at 15%.

His comments helped quell concerns that the 15% rate would be added on to already existing U.S. tariffs on Japanese goods, which would result in a much higher levy than indicated. 

Asia FX drifts lower amid tariff jitters, RBA rate decision on tap 

Broader Asian currencies mostly drifted lower on Friday, as sentiment towards the region was quashed by uncertainty over the impact of U.S. tariffs, which took effect from Thursday. 

The South Korean won’s USDKRW pair rose 0.3%, while the Singapore dollar’s USDSGD pair added 0.1%.

The Chinese yuan’s USDCNY pair was flat, while the Indian rupee’s USDINR pair rose 0.1% and remained close to record highs. 

Trump imposed 25% tariffs on India, and said he will hike tariffs against the country to 50% in 21 days, unless New Delhi halts its purchases of Russian oil. 

50% tariffs would put India among the highest tariffed countries by the U.S., heralding pressure on India’s exporters and broader economy. New Delhi criticized the U.S. tariffs, but signaled no immediate plans to begin curtailing oil buying from Russia. 

This saw the rupee tumble to record lows against the dollar earlier this week. 

The Australian dollar’s AUDUSD pair rose 0.1%, with focus on a Reserve Bank of Australia meeting next week.

The central bank is widely expected to cut interest rates further, amid persistent signs of cooling inflation in the country. Its August cut also comes after the RBA blindsided markets with an unexpected hold in July. 

The Taiwan dollar’s USDTWD pair rose 0.1%.