Most Asian currencies were stuck in a tight range on Wednesday, while the dollar held on to a recent rally after several Federal Reserve officials warned against betting that the central bank is done raising interest rates.
This shifted the focus to an upcoming speech by Fed Chairman Jerome Powell, as markets looked for more clues on U.S. monetary policy.
Sentiment in Asian markets remained subdued as traders remained nervous about further hawkish signals from the Fed. Continued signs of economic weakness in China also kept traders wary of regional markets.
The Chinese yuan rose 0.1% on Wednesday, mainly benefiting from a stronger daily midpoint fix by the People’s Bank of China. The yuan was also supported by reports that the Chinese government met with major real estate developers to assess their financial condition, potentially heralding more support for the beleaguered sector.
However, weak economic data from the country limited any major gains. Data on Tuesday showed that Chinese exports fell more than expected, while the country’s trade balance shrank to a 17-month low in October.
The focus is now on Chinese inflation data due on Thursday.
The Japanese yen fell 0.1%, remaining well above the 150 level against the dollar, as dovish signals from the Bank of Japan and strength in the dollar offered little support.
The currency’s weakness saw traders positioning for possible intervention in the currency markets by the Japanese government to boost the yen. Japanese ministers had given a number of verbal warnings of such a move in October.
The Australian dollar rose 0.1%, recovering slightly after somewhat dovish signals from the Reserve Bank of Australia sent the currency tumbling nearly 1% on Tuesday.
The RBA raised interest rates as expected, but flagged a more data-dependent approach to future hikes, spurring bets that the bank was done raising rates.
However, the central bank also forecast higher Australian inflation over the next two years.
Most other Asian currencies stayed in a tight range as their outlook deteriorated in the face of higher-for-longer U.S. interest rates.
The dollar index and dollar index futures edged higher in Asian trade on Wednesday, extending a rebound from six-week lows, as several Fed officials hinted at the potential for more interest rate hikes.
Fed officials, including Minneapolis Governor Michelle Bowman and President Neel Kashkari, warned that sticky inflation and resilience in the U.S. economy could call for more rate hikes from the central bank.
Their comments came ahead of two separate speeches by Chairman Jerome Powell this week.
The Fed had offered a seemingly less hawkish outlook on U.S. interest rates last week, leading traders to price in a nearly 100% chance that the central bank would not raise rates further. However, these bets appear to have moderated this week.