Most Asian currencies retreated on Wednesday, while the dollar held on to strong gains as markets hunkered down ahead of the conclusion of a Federal Reserve meeting later in the day.
Weak purchasing managers’ index (PMI) data from China also kept regional market sentiment fragile, as the region’s largest economy and trading hub saw continued economic weakness in October.
The Chinese yuan was flat, receiving some support from a stronger midpoint fix from the People’s Bank of China. However, sentiment towards the currency remained largely negative as a private PMI survey showed that China’s manufacturing sector contracted in October.
The reading followed a government survey on Tuesday that showed a similar contraction, adding to market doubts about a Chinese economic rebound this year.
Other China-exposed currencies were flat to lower. The Australian dollar fell slightly, while the South Korean won lost 0.3% after data showed disappointing exports and imports for October.
The Indian rupee gained 0.1%, taking some relief from the recent drop in oil prices.
Japanese Yen on Intervention Watch After BOJ-Driven Selloff
The Japanese yen rose 0.3% on Wednesday, recovering slightly from a one-year low, as the country’s top financial officials warned investors against speculating against the yen.
The yen slumped 1.7% against the dollar to 151.77 on Tuesday after the Bank of Japan largely disappointed investors with minimal changes to its ultra-dovish policy.
The drop fueled speculation that Japanese authorities will intervene in the currency markets, as the yen was close to a threshold that would have triggered more than $60 billion in government intervention in late 2012.
The currency also came under increased pressure from uncertainty surrounding this week’s Fed meeting, as a widening gap between U.S. and Japanese yields has been a major source of pain for the Yen over the past year.
Dollar Strong Ahead of Fed Meeting, Treasury Auctions in Focus
The dollar index and dollar index futures were slightly higher in Asian trading after a strong overnight rally against a weaker yen.
Markets were focused on the conclusion of the Fed meeting later in the day. While the central bank is expected to hold rates steady, it will also reiterate its “higher for longer” stance – a scenario that bodes well for the dollar but poorly for Asian markets.
Ahead of the Fed, however, the focus will be on an announcement from the U.S. Treasury on its plans to refund government debt, especially amid a prolonged rout in bonds over the past month.
The refunding announcement is expected to provide clues as to the size and mix of planned Treasury auctions, and will also offer insight into how the government plans to replenish its massive debt load in the face of a severe bond sell-off.
