Most Asian currencies rose on Friday, while the Dollar continued to weaken as traders bet that the Federal Reserve is done with its rate hikes, although the anticipation of the key Non-Farm Payrolls data kept gains in check.
Regional trading volumes were also somewhat muted due to a holiday in Japan.
Interest rate-sensitive, riskier units such as the South Korean won, Philippine peso and Indonesian rupiah were the day’s best performers, rising between 0.5% and 1%.
The Japanese yen rose 0.1% in holiday-thinned trading, but remained near its weakest level in a year at over 150 to the dollar. This kept traders wary of Japanese government intervention in the currency markets after the Bank of Japan struck a less hawkish tone earlier this week.
The Chinese yuan was flat, hovering around a one-year low, following a string of weak economic data this week. A private survey showed on Friday that China’s service sector activity grew less than expected in October, although it accelerated slightly from the previous month.
Dollar Weak on Easing Rate Hike Fears, Non-Farm Payrolls in Focus
The major Asian currencies rose, while the dollar pared losses for the week after the Fed kept interest rates steady and offered somewhat dovish signals on further rate hikes.
This spurred increased bets that the central bank is done with its rate hikes for the year and will begin cutting rates from mid-2024. The dollar index and dollar index futures fell slightly in Asian trading and were down 0.4% for the week.
However, the dollar faced another major test on Friday, with the key October nonfarm payrolls data due later in the day.
Any signs of resilience in the labor market will give the Fed more impetus to raise interest rates, which in turn could reverse some of the dollar weakness seen this week. The Fed still left the door open for one more rate hike this year, although the move will largely depend on more economic data.
Friday’s data is expected to show a sharp decline in payrolls. But the data has also consistently beaten market estimates so far in 2023, as the U.S. labor market remains strong.
Australian Dollar Set for Strong Week as RBA Rate Hike Looms
The Australian dollar fell 0.1%, but is still up 1.5% for the week amid increasing bets that the Reserve Bank of Australia (RBA) will raise interest rates at its meeting next Tuesday.
This notion was bolstered by better-than-expected retail sales data for the third quarter, which suggested that strong retail spending could potentially underpin inflation in the coming months.
Recent signs of sticky Australian inflation, coupled with a resilient labor market and retail spending, are expected to spur the RBA to raise interest rates by at least 25 basis points next week.
The bank has raised rates by a cumulative 400 basis points over the past year, but has been on hold since May to gauge the impact of rate hikes on the Australian economy.