Sep 25, 2023: Most Asian currencies moved in a flat-to-low range on Monday, remaining under pressure from the prospect of higher-for-longer U.S. interest rates, while the dollar steadied near six-month peaks.
Regional currencies were hit hard by hawkish messaging from the Federal Reserve last week, as the central bank warned that a recent resurgence in inflation was expected to potentially invite more rate hikes.
The central bank also said that interest rates will remain higher for longer- a trend that heralds more pressure on Asian currencies, as the gap between risky and low-risk yields narrows.
The dollar index and dollar index futures steadied slightly in Asian trade, and were trading just below a six-month peak hit last week. U.S. Treasury yields were also trading at multi-year highs, with the 10-year rate at its highest level since 2007.
Chinese yuan dips on property market jitters, PMIs awaited
The Chinese yuan fell 0.1% on Monday, brushing off a slightly stronger daily midpoint fix amid renewed concerns over China’s debt-addled property market.
Real estate giant China Evergrande Group (HK:3333) warned that it was unable to issue new debt due to a government investigation into its subsidiary Hengda Real Estate Group.
This fueled concerns over a broader debt freeze in the market, which is already reeling from a severe cash crunch over the past three years. Fears of a property market meltdown have also fueled concerns over a broader economic downturn, given that the sector accounts for roughly a quarter of overall Chinese growth.
Focus is now on purchasing managers’ index data for September, due this Friday, for more cues on Chinese business activity.
Concerns over China saw the Australian dollar slide 0.2%, while focus was also on upcoming consumer price index inflation data due later this week.
Singapore dollar traded flat before key CPI inflation data due later in the day.
The Indian rupee strengthened slightly, benefiting from the prospect of increased foreign capital inflows after India was added to JPMorgan’s emerging market bond index. But the currency remained close to record lows, facing renewed pressure from a recent spike in oil prices due to India’s large dependence on crude imports.
Japanese yen at 10-mth low on dovish BOJ
The Japanese yen moved little on Monday, and was pinned at its weakest level since November 2022 after the Bank of Japan reiterated its ultra-dovish stance on Friday.
The BOJ said it had no plans to immediately begin scaling back its monetary stimulus policies, which indicates that Japanese interest rates will remain negative for the near-term.
Negative rates saw the yen depreciate rapidly over the past year, as rising interest rates in the rest of the globe drove capital away from the Japanese currency. Worsening economic sentiment also dented the yen’s appeal for carry trade.
Focus this week is also on Tokyo inflation data for September, which usually acts as a precursor to nationwide inflation.
Source Courtesy: Investing.com