Mar 5 2024: Most Asian currencies showed little movement on Tuesday as China’s economic objectives for 2024 failed to inject excitement into markets, while the dollar stabilized ahead of forthcoming signals on interest rates later in the week.
Expectations for further clues on U.S. interest rates also kept most regional currencies trading within narrow ranges, especially as remarks from Federal Reserve officials continued to temper expectations for imminent rate cuts.
Chinese Yuan Steady as National People’s Congress Falls Short of Expectations
The Chinese yuan remained relatively unchanged on Tuesday, with declines in the currency curbed by a robust midpoint fix set by the People’s Bank of China.
Sentiment towards China saw minimal improvement after Beijing announced a 5% GDP target for 2024, mirroring the figure from 2023. However, with a reduced fiscal deficit target for the year, investors questioned the achievability of the target, particularly as the economy no longer benefits from a lower base for comparison due to the COVID-19 pandemic.
Despite promises of additional stimulus measures to bolster growth, the lack of clarity surrounding these proposals dampened investor enthusiasm. Additionally, a private survey indicating a slowdown in China’s services sector growth in February added to ongoing economic challenges for the country.
Other Asian currencies reacted negatively to developments in China, given its significant economic influence in the region.
The Australian dollar, which is heavily exposed to Chinese trade, dipped by 0.1%, despite data showing an improvement in the country’s current account in the fourth quarter. This improvement suggests a potential upturn in fourth-quarter GDP data, scheduled for release on Wednesday.
The Singapore dollar and South Korean won experienced declines, while the Indian rupee maintained stability.
The Japanese yen hovered near a four-month low, despite data revealing that inflation in Tokyo rebounded as anticipated in February. Persistent inflationary pressures provide the Bank of Japan with added incentive to raise interest rates from ultra-low levels.
Dollar Holds Steady Ahead of Powell Testimony and Payrolls Data
The dollar index and dollar index futures steadied in Asian trading on Tuesday, following recent volatility in the markets.
While recent data indicated some resilience in U.S. inflation, traders have largely maintained their expectations for a Fed interest rate cut in June.
However, this sentiment is expected to face significant challenges this week, with Fed Chair Jerome Powell’s two-day testimony, during which analysts anticipate him to uphold his hawkish stance.
Following Powell’s testimony, key nonfarm payrolls data is scheduled for release on Friday, which is anticipated to provide further insights into the labor market.
