Asia FX dips amid Fed independence worries; Aussie tumbles on weak jobs data

Investing.com-- Most Asian currencies fell on Thursday as the dollar steadied after a turbulent session driven by concerns over the Federal Reserve’s autonomy, while the Australian dollar led declines after a jump in unemployment fueled expectations of rate cuts.

The US Dollar Index, which measures the greenback against a basket of major currencies, rose 0.2% in Asia hours. It settled 0.3% lower on Wednesday after sharp losses during the day.

Asian currencies found some respite overnight as the dollar weakened, but retreated on Thursday amid U.S trade tariff concerns.

Fed independence concerns spark risk-off mood

U.S. President Donald Trump on Wednesday rejected claims that he was planning to remove Fed Chair Jerome Powell but did not rule out the possibility, reiterating his criticism of Powell for failing to lower interest rates.

This comes after Trump and his allies ramped up calls for Powell’s removal this week, sparking concerns over the Fed’s independence.

“We saw an interesting experiment played out on Wednesday as the market seemed to genuinely believe that Fed Chair Powell was about to be removed,” ING analysts said in a note.

“We continue to identify this as a low probability event, but we examine how markets behaved in reaction to it, as a mini-version guide on how it might behave if it really did happen,” they added.

Overnight, the dollar and equity markets declined, while long-dated U.S. Treasury yields climbed. In Asia, currencies swung widely overnight, with most turning lower on Thursday.

Asia FX dips; Japanese yen falls amid election concerns

The Japanese yen weakened, with the USD/JPY pair rising 0.5%, as attention turned to election polls suggesting Prime Minister Shigeru Ishiba’s coalition may lose its upper house majority.

The South Korean won’s USD/KRW gained 0.4%, while the Singapore dollar’s USD/SGD edged up 0.3%.

Both the onshore USD/CNY and offshore USD/CNH Chinese yuan pairs traded largely flat.

The Indian rupee’s USD/INR pair was also unchanged.

Elsewhere, the Philippine peso’s USD/PHP rose 0.5% while the Indonesian rupiah’s USD/IDR jumped 0.6%

Aussie dollar drops as soft jobs data sparks RBA cut bets

The Australian dollar’s AUD/USD pair fell as much as 1% to its lowest level in over three weeks.

Data on Thursday showed that Australia’s labor market added far fewer jobs than anticipated in June, while an unexpected rise in unemployment pointed to a continued slowdown in hiring activity.

A weakening labor market, alongside easing inflationary pressures, may provide the Reserve Bank of Australia with extra room to cut rates. 

Policymakers may also find leeway in loosening monetary policy to support the economy amid tariff headwinds.