Mar 18 2024: Asian foreign exchange markets remained subdued on Monday, with the dollar maintaining stability near its recent two-week highs. Investors are eagerly anticipating upcoming central bank meetings, particularly those of the Bank of Japan (BOJ) and the Federal Reserve.
Last week’s strong U.S. inflation data heightened expectations for potential hawkish signals from the Federal Reserve. Additionally, positive wage data and persistent inflation in Japan fueled speculation about the BOJ’s ultra-loose monetary policies.
The Japanese yen showed limited movement on Monday after experiencing volatility driven by uncertainties surrounding the BOJ’s policy decisions. The BOJ’s two-day meeting commenced on Monday, with market participants eagerly awaiting the outcome on Tuesday.
Recent fluctuations in the USDJPY pair, with lows reaching around 146 against the dollar, were influenced by reports of significant wage increases and persistent inflation in Japan. This has led to discussions about the potential end of the BOJ’s dovish stance. However, analysts remain divided on whether the rate hike will occur in March or April, with a slight leaning toward April and expectations of a 20 basis point increase to 0.1% from negative 0.1%.
In the broader context, the dollar index and dollar index futures showed minimal movement during Asian trading, stabilizing near their recent highs. Market attention is primarily focused on the conclusion of the Federal Reserve’s two-day meeting on Wednesday, where any signals regarding interest rate cuts for 2024 will be closely monitored. The possibility of a more hawkish stance from the Fed, given February’s higher-than-expected inflation, could have implications for Asian markets.
Furthermore, investors are awaiting decisions from other regional central banks, including the Reserve Bank of Australia’s rate decision on Tuesday, expected to maintain the status quo amid persistent inflation pressures. The People’s Bank of China is also anticipated to leave its loan prime rate unchanged.
Mixed economic data from China, showing stronger industrial production but weaker retail sales and unexpected rises in unemployment, contributed to limited movements in Asian currencies on Monday. The AUD/USD slightly strengthened, the Chinese yuan remained stable, the South Korean won saw no significant change, and the Singapore dollar remained flat. Meanwhile, the Indian rupee saw a slight appreciation against the dollar, reflecting ongoing support from the Reserve Bank of India.
