Feb 21 2024: On Wednesday, most Asian currencies experienced gains, finding relief as the dollar retreated in anticipation of further guidance from the Federal Reserve regarding interest rates.
While regional currencies had previously suffered significant losses amid diminishing expectations of early rate cuts by the Fed, the dollar’s retreat from recent highs this week provided some respite to Asian markets.
Both the dollar index and dollar index futures dipped approximately 0.1% each in Asian trading, as investors opted to collect profits in the greenback ahead of a series of Fed cues scheduled for this week.
Later on Wednesday, markets awaited the release of the minutes from the Fed’s late-January meeting, during which the central bank maintained steady rates and downplayed prospects of immediate rate cuts. Additionally, a lineup of Fed officials, including Raphael Bostic and Michelle Bowman, are set to deliver speeches this week.
Meanwhile, the Chinese yuan saw a 0.1% increase, buoyed by optimism surrounding a potential economic revival in Asia’s largest economy. Favorable data reflecting heightened consumer spending and travel demand during the Lunar New Year holiday contributed to hopes for a robust recovery in consumption, a key driver of the Chinese economy.
The People’s Bank of China’s decision to implement a larger-than-expected reduction in its five-year loan prime rate on Tuesday further signaled additional support for the Chinese economy.
Although lower interest rates typically weigh on the yuan, government intervention in currency markets helped mitigate losses, with reports indicating purchases of yuan and sales of dollars by several Chinese state-owned banks.
Elsewhere in Asia, the Japanese yen edged up by 0.1%, while remaining around the 150 level, following data revealing a larger-than-anticipated increase in Japanese exports in January, alongside a contraction in imports exceeding expectations.
The Singapore dollar and South Korean won traded relatively flat, while the Australian dollar led gains across the region with a 0.3% rise, driven by optimism surrounding China. Additionally, stronger-than-expected wage price index data for the fourth quarter in Australia fueled speculation that the Reserve Bank would maintain higher interest rates for an extended period.
The Indian rupee remained stable after strengthening beyond the 83 level in overnight trading.
