The dollar steadied in Asian trade on Wednesday with focus squarely on a Federal Reserve meeting later in the day, while the Australian dollar weakened after consumer inflation data for March showed a slightly smaller than expected spike. 

Broader Asian currencies largely retreated as sentiment remained frayed in the face of little progress towards U.S.-Iran peace talks, while anticipation of the Fed meeting also spurred flows into the dollar. 

Regional trade was dulled by a market holiday in Japan, with the yen weakening slightly. 

Dollar steady as Fed decision looms 

The dollar index and dollar index futures steadied in Asian trade, retaining some of their recent gains.

The greenback remained upbeat before the conclusion of a two-day Fed meeting later in the day, where the central bank is widely expected to leave interest rates unchanged. 

Focus will be squarely on the Fed’s outlook for inflation and rates, especially following a series of hawkish signals from other central banks on the inflationary impact of the Iran war.

Wednesday’s meeting is also expected to be the last under Fed Chair Jerome Powell, whose term ends on May 15. A major hurdle for Fed Chair nominee Kevin Warsh was cleared last week after Republican Senator Thom Tillis reversed his opposition of Warsh’s appointment, paving the way for a Congressional vote. 

Australian dollar falls after March CPI reads slightly below expectations 

The Australian dollar’s AUD/USD pair fell 0.25% after consumer price index inflation data for March and the first quarter read a touch below expectations.

But the data still showed a sharp increase in inflation over the past month, driven chiefly by higher fuel costs stemming from the Iran war. 

Core inflation also read a touch below expectations, remained steady and above the Reserve Bank of Australia’s 2% to 3% annual target. 

While the data did not show inflation rising as much as markets had feared, it still pointed to more interest rate hikes by the RBA. The central bank hiked rates by a cumulative 50 basis points in 2026, and warned of more such moves in the face of a fuel-driven increase in inflation. 

ANZ analysts said that despite the softer-than-expected CPI print, they still expect another 25 bps hike by the RBA at its May meeting. 

Asia FX muted as Iran uncertainty, Hormuz disruptions persist 

Broader Asian currencies largely retreated on Wednesday, as risk appetite remained weak due to a continued impasse in the U.S.-Iran war. Reports showed U.S. President Donald Trump telling his aides to prepare for an extended blockade in the Strait of Hormuz– a move that points to little immediate relief for markets. 

A market holiday in Japan also kept regional trading volumes low. The yen’s USD/JPY pair rose slightly and remained close to the 160 yen level, even after the Bank of Japan held interest rates and struck a hawkish chord on Tuesday.

The Chinese yuan’s USD/CNY pair was flat, while the South Korean won’s USD/KRW pair rose 0.3%. Chinese purchasing managers index data for April is also due in the coming days. 

The Indian rupee’s USD/INR pair rose 0.3% and came closer to breaking above 95 rupees, although traders remained wary of any further intervention by the Reserve Bank. 

The Singapore dollar’s USD/SGD pair was flat, while the Taiwan dollar’s USD/TWD pair rose 0.1%.