July 23 2024: Asian currencies drifted higher on Tuesday, while the dollar retreated due to continued expectations of interest rate cuts and uncertainty over the 2024 presidential election in the United States. Sentiment towards Asia remained constrained by concerns over China, including signs of a slowing economic recovery and uncertainty regarding future U.S. policies towards the country.
Japanese Yen Outperforms:
The Japanese yen was the best performer of the day, continuing to strengthen against the dollar following suspected government intervention last week. The USDJPY pair fell 0.4% to 156.41 yen, nearing a 1.5-month low.
A senior Japanese government official called for more clarity on interest rate hikes by the Bank of Japan, as reported by the Nikkei. This comes just a week ahead of a BOJ meeting where some analysts expect a 10 basis point rate hike. Recent increases in nationwide inflation support this expectation, although inflation remains relatively sluggish.
Dollar Dips Amid Presidential Race and Rate Cut Speculation:
The dollar index and dollar index futures both fell 0.1% each in Asian trade, stalling after a sharp rebound over the past two sessions. The greenback turned volatile due to increased uncertainty over the U.S. presidential race after President Joe Biden announced he would not seek re-election and endorsed Vice President Kamala Harris as the Democratic nominee.
Reports indicated that Harris had garnered enough support from Democratic delegates to become the party’s nominee, though she still needs formal nomination. Republican nominee Donald Trump was polling ahead of Biden and Harris as of last week, according to CBS and HarrisX data. Expectations of a Trump presidency had provided some strength to the dollar, as analysts predicted he would enact protectionist trade policies.
However, the dollar has faced steep losses in recent weeks amid growing conviction that the Federal Reserve will cut interest rates in September. The central bank is expected to keep rates unchanged at its meeting next week.
Broader Asian Currency Movements:
Singapore Dollar (USDSGD pair): Fell 0.1%
South Korean Won (USDKRW pair): Fell 0.3% after South Korean producer inflation picked up slightly in June.
Indian Rupee (USDINR pair): Fell slightly but remained close to record highs hit earlier in July, with focus on India’s 2024 budget set to be unveiled later in the day.
Chinese Yuan Remains Fragile:
The Chinese yuan moved little on Tuesday, seeing limited relief after an unexpected interest rate cut by the People’s Bank of China. The USDCNY pair hovered around 7.2738 yuan, remaining close to levels last seen in November. The currency has been under pressure due to increasing uncertainty over the Chinese economy, especially after recent data showed it grew less than expected in the second quarter.
Speculation over a potential Trump presidency also weighed on the yuan, given that Trump’s administration had sparked a trade war with Beijing in the late-2010s. Concerns over China pressured some other Asian currencies as well, with the Austra