Asia FX muted, dollar firms as China PMIs loom

© Reuters.

By Ambar Warrick

Investing.com -- Most Asian currencies kept to a tight range on Thursday amid caution ahead of key Chinese economic data, while easing fears of a banking crisis spurred sharp gains in Treasury yields and a recovery in the dollar.

The dollar rose in overnight trade, and firmed slightly in the Asian session as easing pressure on the banking sector saw markets reassess their outlook on U.S. interest rate hikes in the near-term.

The dollar index and dollar index futures rose less than 0.1% each, after adding 0.2% in overnight trade.

The Chinese yuan was flat as investors digested a slew of signals on Asia’s largest economy. Premier Li Qiang said that the economy had improved in March after a sluggish start to the year, and that the government will keep rolling out supportive measures.

But optimism over his statements was somewhat offset by fears of worsening U.S.-China tensions, as Beijing warned of retaliation over Taiwan President Tsai Ing-wen’s American visit.

Focus is now squarely on Chinese manufacturing and service sector activity data for March, due on Friday. Analysts are expecting some cooling in growth, after activity rebounded past pre-COVID levels in February.

China is facing increased economic headwinds from slowing global demand for Chinese goods, as well as sluggish domestic consumption.

Broader Asian currencies edged lower, with China-exposed units marking small losses. The Malaysian ringgit and Philippine peso fell 0.2% and 0.1%, respectively, while the Singapore dollar fell less than 0.1%.

The Thai baht fell 0.2% as data showed exports continued to fall in February, albeit at a slower pace than expected. The country’s trade deficit also shrank sharply from the prior month.

The Australian dollar was flat amid growing bets that the Reserve Bank could pause its current rate hike cycle by as soon as April. Analysts also trimmed their forecasts for the RBA’s terminal rate, as inflation retreated further in February.

The Japanese yen rose 0.2%, but was nursing steep overnight losses as it came under pressure from a resurgence in the dollar.

The greenback trimmed some of its recent losses as easing pressure on the banking sector saw markets price in a greater chance of more interest rate hikes by the Federal Reserve, as it continues to move against high inflation.

Treasury yields also ticked higher in overnight trade.

But both the dollar and yields were nursing steep losses in March, as fears of a banking crisis decimated expectations that the Fed will remain hawkish indefinitely.