Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Asia FX sinks on Fed, China woes; Aussie slides after RBA

Published 11/07/2023, 12:07 AM
© Reuters.
- Most Asian currencies fell on Tuesday as a warning from Federal Reserve officials and signs of more economic headwinds for China dented sentiment, while the Australian dollar tumbled after the Reserve Bank struck a seemingly dovish tone.

The U.S. dollar rebounded from six-week lows, firming in Asian trade after Minneapolis Fed President Neel Kashkari cautioned against too much enthusiasm over an end to the Fed’s rate hike cycle.

His comments somewhat dented optimism over a potential end to the Fed’s tightening cycle this year, and saw traders step back from a strong rally in risk-driven assets over the past four sessions. 

This saw Asian currencies reverse a bulk of their recent gains, with the Japanese yen once again weakening past the 150 level to the dollar. The rate-sensitive South Korean won lost 0.7%, as did the Malaysian ringgit, while the Indian rupee hovered near record lows.

Australian dollar plummets on dovish RBA language 

The Australian dollar was by far the worst performer among its peers, down 0.8% after the Reserve Bank of Australia (RBA) hiked interest rates as expected, and signaled a more sticky outlook for inflation.

The hike was driven chiefly by a stronger-than-expected inflation reading for the third quarter, which reversed a trend of easing inflation seen earlier this year. 

But a change in the RBA’s language- particularly with regards to more rate hikes, saw traders betting that the central bank was done with its rate hike cycle.

Specifically, the RBA offered a more data-driven outlook on future monetary tightening than what it had signaled in the past. Still, Tuesday’s hike put Australian rates at their highest in 12 years. 

Chinese trade data disappoints, yuan down

The Chinese yuan fell 0.1% as data showed that China’s exports shrank more than expected in October, while the country’s trade surplus narrowed to its weakest level in 17 months.

While imports unexpectedly rose, weakness in exports signals a continued decline in China’s biggest economic engines- its exporters. A bulk of this decline was driven by worsening demand in the country’s biggest export destinations in the West. 

Weakness in China bodes poorly for broader Asian markets, which depend on the country as a trading hub. Chinese inflation data is due later in the week, and is expected to offer more cues on the Asian giant. 

Dollar rebounds as Kashkari warns against Fed pause bets 

The dollar index and dollar index futures rose 0.2% each in Asian trade, extending an overnight rebound from six-week lows.

Kashkari warned that while the Fed had made some progress against inflation, it still remained well above the central bank’s 2% target- a trend that could attract more rate hikes.

He noted that the U.S. economy had proven to be unexpectedly resilient, which in turn could keep inflation underpinned in the coming months. 

Prior to Kashkari’s comments, markets were pricing in a nearly 100% chance that the Fed was done with its rate hike cycle, especially following a weak payrolls reading last week. But traders scaled back bets for a Fed pause on Tuesday.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.