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Asia FX steadies as dollar dips from 3-mth high; rate fears persist

Published 02/06/2024, 11:54 PM
© Reuters.

Investing.com-- Most Asian currencies kept to a tight range on Wednesday, steadying after recent losses as the dollar retreated from recent three-month peaks, although the prospect of higher-for-longer U.S. rates still kept traders on edge.

Regional currencies were nursing steep losses over the past three sessions, after a string of robust U.S. economic readings and hawkish comments from Federal Reserve officials saw traders largely price out bets on early rate cuts by the central bank.

This trend spurred sharp gains in the dollar, with the greenback hovering just below its strongest levels since early-November. The dollar index and dollar index futures both fell about 0.1% in Asian trade.

With markets now pricing out rate cuts in March and May, Asian units are likely to see more pressure in the coming weeks while the dollar is set to remain strong. Higher U.S. rates diminish the appeal of risk-heavy, high-yielding assets. 

U.S. inflation data for January, due next week, is set to offer more cues on the path of interest rates.

Among Asian currencies, the Australian dollar was somewhat of an outlier, rising 0.1% and extending strong gains from the prior session after the Reserve Bank of Australia warned it could still hike rates further in the face of sticky inflation. 

The Japanese yen steadied after hitting a 1-½ month low earlier this week, amid continued uncertainty over the Bank of Japan’s plans to begin tightening policy. 

The Chinese yuan moved little, and also largely lagged its regional peers as concerns over China’s economic health persisted. While Chinese authorities announced a slew of measures to support local stock markets this week, they did little to address a sluggish economic recovery in the country.

Chinese inflation data for January is due on Thursday, and is expected to provide little support to the yuan. The data also comes before the week-long Lunar New Year holiday.

Most other Asian units kept to a tight range. The Singapore dollar and South Korean won both rose 0.1% after seeing some losses this week.

Indian rupee firms ahead of RBI, Reuters poll sees some strength 

The Indian rupee rose 0.1% and managed to just break below the 83 level against the dollar. Focus was squarely on a Reserve Bank of India meeting this Thursday, where the central bank is expected to keep interest rates unchanged.

But the RBI’s outlook on inflation and economic growth will be in close focus.

A Reuters poll showed analysts expect the rupee to see some strength this year, amid continued support from the RBI. 

But the Indian currency remains close to record lows, having seen little strength despite stellar growth in the Indian economy over the past two years. 

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