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Asia FX muted, dollar near 1-mth high amid doubts over early rate cuts

Published 01/18/2024, 12:18 PM
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Investing.com-- Most Asian currencies moved little on Thursday after clocking steep losses in the prior session, while the dollar fell slightly from a one-month high as strong U.S. retail sales data spurred more doubts over early rate cuts by the Federal Reserve.

Sentiment towards Asian markets remained weak following softer-than-expected Chinese gross domestic product data, which showed the region’s largest economy struggling with a sluggish post-COVID recovery.

The Chinese yuan was flat after sinking to its lowest level in nearly two months. But further losses in the currency were limited by a stronger-than-expected midpoint fix by the People’s Bank of China.

Still, the outlook for the yuan remained dour, as the PBOC grappled with sluggish growth and limited headroom to keep supporting the currency.

Concerns over China weighed on most Asian currencies, given the country’s dominance as a trading hub for the region.

The Australian dollar rose 0.3% on Thursday after sinking to an over one-month low in the prior session.

Labor data showed Australian employment unexpectedly fell in December, although the broader labor market still remained relatively tight.

The Singapore dollar- which also has major trade exposure to China- rose slightly after hitting a two-month low on Wednesday, while the Taiwan dollar steadied near a two-month low.

The Japanese yen steadied at a 1-½ month low ahead of key consumer price index (CPI) data due on Friday, which is expected to show a sustained decline in inflation. The reading is expected to provide the Bank of Japan with little impetus to begin tightening its ultra-loose policy, which bodes poorly for the yen.

The yen was among the worst-performing Asian currencies in 2023, with a widening gulf between U.S. and Japanese interest rates acting as a key point of pressure. This trend is now likely to continue in the near-term, as traders further trimmed expectations for early interest rate cuts by the Fed.

The South Korean won rose 0.1% from a 2-1/2 month low, while the Indian rupee hovered near record lows.

Dollar steadies near one-month high as early rate cut bets wane

The dollar index and dollar index futures fell between 0.1% and 0.2% in Asian trade, after clocking a strong rebound earlier this week.

Retail sales data for December read stronger than expected, giving further credence to recent comments from Fed officials that the bank will keep rates higher for longer.

The retail sales data came after stronger CPI inflation and nonfarm payrolls readings for December. Strength in the U.S. economy gives the Fed more headroom to keep rates higher for longer.

The data also saw traders further scale back bets on a March rate cut by the Fed, according to the CME Fedwatch tool. Traders are now pricing in a 61.8% chance for a 25 basis point cut in March, down from a 67.3% chance seen a week ago.

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