In recent trading sessions, most Asian currencies have advanced, driven by the increasing belief that the Federal Reserve has concluded its interest rate hikes, leading the dollar to a three-month low.
While the majority of regional currencies have experienced limited gains, traders remain cautious ahead of key economic data releases scheduled for the week. The focus is particularly on the PCE price index, the Fed’s preferred inflation gauge.
The Japanese yen has notably strengthened, rising 0.3%, as traders anticipate a shift in the Bank of Japan’s stance in 2024 away from its ultra-dovish position. Positive Japanese inflation data from the previous week has contributed to this outlook.
The South Korean won and the Australian dollar have also seen modest gains, with the latter tracking strength in commodity prices. However, unexpectedly shrinking Australian retail sales in October have raised concerns about potential lower inflation in the coming months.
The Indian rupee remains flat around record lows, while the Singapore dollar and Philippine peso show marginal movements.
The dollar index and dollar index futures have dipped in Asian trade, extending losses after reaching three-month lows. Growing expectations that the Fed will halt interest rate hikes and potentially trim rates in 2024 have weighed on the greenback.
Market participants are eagerly awaiting economic indicators, including the PCE data and U.S. PMI readings for November, to assess the timing of any potential Fed policy adjustments. Resilience in the U.S. economy could support the Fed’s decision to maintain higher rates, while signs of a faster-than-expected economic slowdown could prompt a shift in policy.
Asian markets, sensitive to U.S. rate movements, are expected to see more gains with the prospect of a less hawkish Fed.
The Chinese yuan has shown minimal movement, with attention on upcoming PMI readings for November. Concerns about China’s economic rebound and limited stimulus measures have influenced the currency’s performance. PMI readings are anticipated to reveal ongoing weakness in business activity, following disappointing October data. Beijing’s cautious approach to additional policy support has also weighed on Asian markets, given China’s significant role as a regional trading hub.