On Thursday, most Asian currencies lost ground as the US dollar experienced a slight uptick, benefiting from easing geopolitical and trade tensions, particularly regarding Greenland. The Australian dollar, however, moved counter to this trend by surging to its highest level in over a year, buoyed by surprisingly positive employment data.
The US Dollar Index, which benchmarks the greenback against a basket of leading global currencies, edged higher, following a 0.1% gain overnight. Meanwhile, US Dollar Index Futures remained mostly unchanged as of 05:48 GMT.
US President Donald Trump retreated from his earlier tariff threats linked to his initiative to acquire Greenland, stating on Wednesday that a peaceable resolution satisfying all parties might soon be achieved. He categorically dismissed the prospect of using military force, which alleviated investor unease that had previously bolstered demand for safe-haven assets.
That diplomatic softening contributed to stabilizing global markets and eased downward pressure on the US dollar. Nevertheless, the greenback firmed marginally against several Asian currencies as market participants began to consolidate positions in light of the stronger dollar and revisited regional policy outlooks.
In Japan, the yen faced depreciation pressure, with the USD/JPY exchange rate increasing by 0.3%, hovering near 18-month lows. Market attention centered on Prime Minister Sanae Takaichi's call for a snap election alongside indications of potentially expansionary fiscal policies. Analysts at MUFG noted that Takaichi's proposal to suspend the 8% consumption tax on food and non-alcoholic beverages for two years has intensified apprehensions over increased deficit financing. Despite Japan's ongoing commitment to fiscal prudence and potential foreign exchange interventions, uncertainties related to the election and a steeper yield curve for Japanese Government Bonds suggest the yen will likely remain under pressure.
Elsewhere in the region, the South Korean won depreciated against the dollar, with the USD/KRW pair rising by 0.3%, while the Singapore dollar remained essentially unchanged against the greenback. The Indian rupee traded flat at 91.58 per dollar, slightly below the previous session's record high of 91.63. Meanwhile, China's onshore yuan held steady, with minimal movement in the USD/CNY rate.
The standout performer was the Australian dollar, which appreciated 0.8% against the US dollar, reaching a 15-month peak. This move followed employment data for December revealing a substantial 65,200 increase in jobs, considerably surpassing forecasts. Simultaneously, the unemployment rate unexpectedly declined to 4.1%, contrary to expectations of a slight rise. These robust labor market figures reinforced market expectations that the Reserve Bank of Australia may raise interest rates at its forthcoming February meeting. Traders have thus elevated the probability of a near-term rate hike, reflecting optimism for monetary tightening.