Most Asian currencies remained range-bound on Thursday, as some signs of resilience in the U.S. labor market pushed the dollar higher and fueled uncertainty over the path of interest rates.
Regional trading volumes were light due to holidays in the U.S. and Japan, and are expected to remain muted for the rest of the week.
The Chinese yuan was one of the day’s better performers, rising 0.2% to 7.1428 against the dollar after the People’s Bank’s daily midpoint fix was much stronger than expected.
Markets were also watching for further stimulus from the government as Beijing was seen to be preparing more monetary support for the struggling property sector.
The focus is now on China’s November PMI data, due next week, for more clues on the economy after a series of weak readings for October.
Among other Asian currencies, the Japanese yen rose 0.3% in holiday-thinned trade, but suffered steep overnight losses as the dollar recovered. Consumer inflation data for October is due on Friday and is expected to provide more clues on the Bank of Japan‘s plans for its ultra-dovish monetary policy.
The Australian dollar rose 0.2% as Reserve Bank Governor Michele Bullock reiterated her warning about sticky inflation, which could lead to more interest rate hikes from the central bank in the coming months.
The South Korean won edged higher, while the Indian rupee hovered near record lows. The Indian currency hit a record low of 83.565 this week as steady dollar demand from local importers largely offset weakness in the greenback.
India’s large trade deficit has been a major pressure on the rupee, which has hit a series of record lows against the dollar this year.
Dollar Steady After Overnight Gains, Fed Rate Outlook Uncertain
The dollar index and dollar index futures each lost about 0.2% in Asian trade, but were sitting on two straight days of gains after data showed weekly jobless claims fell less than expected, pointing to some resilience in the labor market.
The data was preceded by somewhat hawkish signals from the minutes of the Federal Reserve’s late-October meeting, which fueled uncertainty over when the central bank will begin to lower interest rates.
With the Fed maintaining its higher-for-longer outlook for interest rates, traders trimmed some bets that the bank will begin cutting rates as early as March 2024.
Still, traders were largely betting that the bank is done raising rates, which in turn kept the dollar trading near three-month lows. This trend provided some support for the Asian currencies this week.
