Most Asian currencies strengthened on Thursday, while the dollar fell sharply after mixed signals from the Federal Reserve increased bets that the central bank will not raise interest rates further.
The Australian dollar was one of the day’s best performers, rising 0.7% as it shrugged off weaker-than-expected trade data.
Markets are becoming increasingly confident that the Reserve Bank of Australia will raise interest rates when it meets next week, bringing them closer to U.S. levels and making the Aussie look more attractive.
The Japanese yen jumped 0.5%, rebounding sharply from a one-year low as government officials continued to threaten intervention in the currency markets. However, the Yen was still above the 150 level against the Dollar after suffering steep losses this week following dovish signals from the Bank of Japan.
Dollar Slips as Powell Strikes Less Hawkish Tone
The dollar index and dollar index futures each fell 0.5% in Asian trading, extending overnight losses as traders increased bets that the Fed is done raising interest rates.
While the Fed left rates unchanged as expected, Chairman Jerome Powell struck a less hawkish tone than markets had anticipated, acknowledging that monetary conditions have tightened significantly in recent months.
Powell still left the door open for another hike. But markets took his comments as a sign that the Fed was done with its hiking spree and would likely cut rates by mid-2024.
However, even if the Fed doesn’t raise rates further, they are expected to remain above the 5% level until at least the end of 2024. This offers limited upside for Asian currencies, most of which have suffered steep losses this year under pressure from rising US rates.
The focus is now on the key Non-Farm Payrolls data due on Friday. Any signs of a cooling labor market will likely give the Fed more ammunition to keep rates on hold.
Major Asian currencies rose on Thursday. The South Korean won rose 0.5% after data showed that Korean inflation rose more than expected in October.
The Singapore dollar added 0.2% ahead of key retail sales data due on Friday, while the Malaysian ringgit gained 0.4% ahead of an interest rate decision later in the day.
Chinese Yuan Lagging as Economic Jitters Continue
The Chinese yuan was the worst performer among its Asian peers on Thursday, moving little as a string of weak economic data from the country kept investors at bay.
Purchasing managers’ index data released earlier this week showed an unexpected contraction in Chinese manufacturing activity, raising doubts about an economic recovery in the world’s second-largest economy.
A reading on the services sector is due on Friday and is expected to provide more clues on the Chinese economy.
