Asian currencies mixed as dollar holds two-month high, RBA decision looms

Asian currencies experienced mixed movements on Tuesday, with the Japanese yen struggling to break recent lows amid concerns over intervention and the Bank of Japan's policy stance. The U.S. dollar, meanwhile, hovered near a two-month high, while Australia awaited a highly anticipated interest rate hike. Factors contributing to the dollar's strength included volatile oil prices and a significant rise in Treasury yields.

The dollar index remained relatively stable at around 101.21 after touching 101.27 earlier, signaling a potential 1.8% gain for the month, its strongest September performance since June. The USD/JPY pair stood at approximately 157.36. Meanwhile, Brent crude oil hovered around $106 per barrel, and heightened uncertainty over renewed diplomatic efforts in the U.S.-Iran conflict persisted, further unsettling markets.

The 10-year Treasury yield reached its highest level in over a decade, while the 30-year yield peaked since 2004, buoying the dollar. However, this upward momentum was tempered as markets grew less responsive to oil-price fluctuations and the global bond selloff elevated yields across the board. U.S. economic data anticipated later in the week, including the PCE price index on Wednesday and nonfarm payrolls on Friday, could reignite discussions surrounding the Federal Reserve's interest rate trajectory.

Markets now estimate a more than 70% probability of a Fed rate increase by the end of October, up from 57% the previous week. The yen weakened to around 157.36 per dollar, erasing much of Monday's earlier gains after Atsushi Mimura, Japan's top currency official, cautioned markets against excessive yen weakness. Mimura's warning echoed sentiments from Prime Minister Sanae Takaichi and Finance Minister Satsuki Katayama, who expressed concern about the yen's valuation and reaffirmed a commitment to currency cooperation with the U.S. The Australian dollar was trading around $0.70, unchanged ahead of the Reserve Bank of Australia's (RBA) decision later on Tuesday.

The RBA was widely expected to increase its cash rate by 25 basis points to 4.60%, the highest level since 2011. However, the Australian dollar struggled to regain momentum as much of the anticipated tightening was already priced in. The USD/CNH and USD/CNY pairs experienced slight declines of 0.1%, while the New Zealand dollar stood at approximately $0.5675. The USD/SGD pair gained 0.1% to 1.28.