Dollar dominance faces regionalisation

A de-dollarisation of Asian economies is unlikely, but a gradual weakening of the greenback’s influence over time appears likely.

That’s according to ANZ’s Head of FX Research Mahjabeen Zaman, who spoke to the 5 in 5 with ANZ podcast on the sidelines of the AFR Asia Summit 2025 last week.

The impact of the US government’s tariffs on the region was an ever-present theme throughout the summit, with Zaman addressing the impact on currency markets.

Zaman says the term ‘de-dollarisation’, where economies wean themselves off the greenback as the global reserve currency, is too strong. She prefers the term “FX regionalisation”.

“Sure, the dollar will continue to remain the dominant currency,” Zaman said, “but its impact will likely be a little bit less and less so over a period of time.”

This shift is being driven by a combination of policy uncertainty in the US, evolving trade dynamics, and the increasing liquidity of alternative currencies—most notably the Chinese renminbi and, interestingly, the Australian dollar.

Zaman emphasised that the US dollar’s recent volatility is rooted in uncertainty around tariffs and fiscal planning. While she doesn’t foresee a dramatic crash, Zaman does expect a “gradual normalisation” of the dollar’s value.

“It’s been a flux of change,” Zaman noted. “The direction for the dollar is clearly lower…a gradual, slow adjustment to levels which are a little bit more normal.”

This trajectory is shaped by competing priorities within the US administration: a weaker dollar could support exports and reindustrialisation, while a stronger greenback will help offset imported inflation. However, what policymakers clearly want to avoid is a weaker dollar paired with higher bond yields, which would signal waning investor confidence.

Asian economies have shown resilience in the face of tariff shocks and dollar fluctuations. Zaman observed that many regional currencies are now adjusting more freely, reflecting a “natural and fair transition” in FX markets.

The renminbi remains central to this story. China’s push to internationalise its currency is gaining traction, supported by various government initiatives aimed at enhancing liquidity and usability in global markets.

“The increasing focus on internationalisation of the yuan… is a topic that’s going to remain in play going forward,” Zaman said.

This trend doesn’t signal the end of the dollar’s dominance, but rather a “diversification of influence”—a hallmark of FX regionalisation.

Perhaps most striking is the growing interest in the Australian dollar as an alternate funding currency. Zaman highlighted that foreign entities are increasingly issuing bonds in AUD as a means to diversify their currency exposures.

Australia offers “yield competitiveness” without the political and fiscal risks that plague other major economies.

“A lot of curves today… reflect fiscal risk, political uncertainty and term premium,” Zaman explained. “You look at the Aussie dollar curve… it’s paying similar yield to the US.

“But we don’t have that term premium, that risk, that concern.”

Australia’s strong sovereign standing and stable macroeconomic environment make it an attractive alternative for currency diversification—especially as global investors seek safe havens amid geopolitical flux.

Looking ahead, Zaman flagged November to January as critical months for FX markets. While it is likely to be extended, the US-China trade truce is currently slated to end in November, possibly reigniting uncertainty. The Supreme Court will also begin hearing the case on the legality of IEEPA tariffs in November, with a decision expected in December or January. This could trigger fiscal adjustments.

Yet, the broader narrative is shifting. The focus is moving away from blanket tariffs and toward sectoral tariffs—chips, pharmaceuticals, and rare earths—where currency and trade policy intersect with national security and industrial strategy.

Alexander Liddington-Cox is a contributor with ANZ Insights.