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Asia FX muted, dollar rebound holds with more Fed cues on tap

Published 11/07/2023, 10:54 PM
© Reuters.
- Most Asian currencies kept to a tight range on Wednesday, while the dollar maintained a recent rebound after several Federal Reserve officials warned against betting that the central bank was done with its interest rate hikes.

This put an upcoming speech by Fed Chair Jerome Powell squarely in focus, with markets seeking more cues on U.S. monetary policy. 

Sentiment towards Asian markets remained constrained, as traders remained on edge over any more hawkish signals from the Fed. Continued signs of economic weakness in China also kept traders wary of regional markets.

The Chinese yuan rose 0.1% on Wednesday, benefiting chiefly from a stronger daily midpoint fix by the People’s Bank of China. The yuan also took some support from reports that the Chinese government met with major property developers to gauge their financial positions, potentially heralding more support for the beleaguered sector. 

But weak economic data from the country put a cap on any major gains. Data on Tuesday showed that Chinese exports fell more than expected, while the country’s trade balance shrank to a 17-month low in October. 

Focus is now on Chinese inflation data, due on Thursday.

The Japanese yen fell 0.1%, remaining well above the 150 level to the dollar as dovish signals from the Bank of Japan and strength in the dollar offered little support.

Weakness in the currency saw traders positioning for any potential intervention by the Japanese government in currency markets, to boost the yen. Japanese ministers had offered a slew of verbal warnings in October over such a move. 

The Australian dollar rose 0.1%, recovering slightly after somewhat dovish signals from the Reserve Bank of Australia saw the currency tumble nearly 1% on Tuesday.

The RBA raised interest rates as expected, but flagged a more data-dependent approach to future hikes, spurring bets that the bank was done raising interest rates.

But the central bank also forecast higher Australian inflation over the next two years. 

Most other Asian currencies kept to a tight range, as their outlook soured in the face of higher-for-longer U.S. interest rates.

The Indian rupee was flat but hovered near record lows, while the South Korean won rose 0.1% after the country’s foreign exchange authority said it will open its currency market to global traders and extend trading hours. 

 Dollar steady as Powell speech looms 

The dollar index and dollar index futures both rose slightly in Asian trade on Wednesday, extending a rebound from six-week lows as several Fed officials flagged the potential for more interest rate hikes. 

Fed officials including Governor Michelle Bowman and Minneapolis President Neel Kashkari warned that sticky inflation and resilience in the U.S. economy could call for more rate increases from the central bank.

Their comments came before two separate speeches by Chair Jerome Powell this week. 

The Fed had offered a seemingly less hawkish outlook on U.S. interest rates last week, which saw traders pricing in a nearly 100% chance that the central bank will not raise interest rates any further. But these bets appeared to have tapered off this week.

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