Overview
Asian currencies were broadly muted on Friday, trading inside narrow bands as markets reacted to renewed clarity about U.S. monetary leadership and prepared for central bank decisions closer to home. The U.S. dollar bounced back from near four-year lows after U.S. President Donald Trump said he would name his pick for the next Federal Reserve chair later in the day. That announcement helped pare some of the dollar's earlier weakness, though the greenback still faced heavy losses for the month.
January performance and drivers
Across the region, most currencies posted strong advances in January as traders shifted away from the dollar. The Australian dollar emerged as one of the top performers among Asian currencies, underpinned by rising market conviction that the Reserve Bank of Australia will move to tighten policy at its meeting next week. The Japanese yen also recorded notable gains on speculation that Tokyo might intervene to stem further depreciation.
Australian dollar and RBA expectations
The Australian dollar led January gains in the region, with the AUD/USD pair up nearly 5% for the month. On Friday the pair dipped about 0.6% yet remained close to a near two-year high. Market participants have increasingly priced in at least a 25 basis point rate increase from the RBA at the conclusion of its two-day meeting on Tuesday, after fourth-quarter consumer inflation data showed a sharp rise. Indicators of resilience in the Australian economy have given the central bank some latitude to raise rates, although analysts remain divided on whether additional hikes will follow later in the year.
Dollar dynamics and Fed chair nomination
The dollar index and dollar index futures climbed between 0.2% and 0.5% on Friday as investors reacted to the prospect of a Fed chair nomination that could lift a veil of uncertainty from global markets. The greenback entered the month nursing a 1.8% loss in January - its worst monthly performance since August 2025 - a slide attributed in the article to policy uncertainty at home and heightened geopolitical tensions internationally. Those developments have driven traders toward gold and other physical assets, and supported selling pressure on the dollar that benefited several regional currencies.
Yuan, yen and intervention speculation
The Chinese yuan was among the beneficiaries of reduced dollar demand, with the USD/CNY pair reaching its strongest level in nearly three years. A sequence of robust midpoint fixings from the People's Bank of China also supported the currency. The Japanese yen gained markedly in January, with the USD/JPY pair down about 1.8% for the month. The yen's rebound from 1-1/2 year lows was fuelled by growing speculation about possible intervention by Tokyo, particularly after Prime Minister Sanae Takaichi warned against excessive bets against the yen. Still, on Friday the USD/JPY pair ticked up 0.5% after Tokyo consumer inflation data for January showed a marked slowdown to its weakest reading in nearly four years - a signal that may complicate the Bank of Japan's path toward interest rate increases.
Indian rupee and other regional moves
The Indian rupee underperformed many of its regional peers in January. The USD/INR pair was set to rise more than 2% for the month, as the rupee hit a series of record lows against the dollar. Market feedback cited investor concern about a cooling Indian economy and limited progress toward a U.S.-India trade deal as factors weighing on the currency. Even a substantial trade agreement between India and the European Union provided little offset to the rupee's slide in the month.
Other Asian FX moves included a 0.2% rise in the USD/KRW pair on Friday, with the South Korean won nevertheless positioned to fall about 0.4% for January. The USD/SGD pair also rose 0.2% on the day and was on track to decline roughly 1.5% during the month.
Market positioning and asset flows
Market positioning reflected a broader shift out of the dollar and into alternatives. Traders were observed reallocating into gold and physical assets, while regional currencies benefited from widespread dollar selling. Central bank guidance, consumer inflation prints and geopolitical developments were cited repeatedly as proximate drivers of moves across the region's foreign exchange markets.
Note: This report is based solely on the information presented in the source material and does not add new data or independent forecasts.