Asian Currencies Poised for Weekly Gains as Dollar Slips to 3-Month Low

Most Asian currencies advanced on Friday and were positioned for weekly gains as the U.S. dollar fell to near a three-month low, with its recent weakness outweighing the headwind from rising U.S. bond yields.

The U.S. Dollar Index was trading near 98.735, putting it on course for a weekly decline of nearly 1%, according to market data. The dollar's slide continued despite a move by the U.S. Treasury to double its planned buybacks of longer-dated debt, a measure that failed to provide lasting support.

Yields Rise on Fiscal Concerns

U.S. Treasury yields resumed their upward climb after a brief dip, reflecting persistent investor concerns over the U.S. government's large fiscal deficit and growing debt. The benchmark 10-year Treasury yield was trading around 4.70%, while the 30-year yield was near 5.25%.

While higher U.S. yields typically pressure emerging market currencies, the broader dollar softness has been the dominant driver for Asian foreign exchange markets this week.

Regional Currency Performance

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Across Asia, several currencies posted notable gains against the greenback, though the Indian rupee bucked the regional trend.

• The South Korean won was a top performer, with the USD/KRW pair dropping 0.9% on Friday and heading for a 2.5% weekly decline.
• The Australian dollar (AUD/USD) rose 0.4% and was on track for a weekly advance of nearly 1%.
• The Chinese yuan and Singapore dollar also strengthened, with their respective U.S. dollar pairs set for weekly falls of 0.3% and 0.7%.
• In contrast, the Indian rupee was set for a weekly loss of 0.3%, pressured by rising crude oil prices and hedging by importers.

Focus on Japan

In Japan, new data showed core consumer inflation accelerated to 1.8% year-on-year in July, matching economists' expectations. The reading has reinforced market expectations that the Bank of Japan could raise its policy rate from 1% at its September meeting, even with inflation remaining below its 2% target.

The Japanese yen edged higher against the dollar, with the USD/JPY pair trading near 159. The pair was on track to dip 0.2% for the week.