Most Asian currencies rose on Tuesday amid growing conviction that the Federal Reserve is done raising interest rates, which in turn pushed the dollar to a three-month low.
Still, gains in most regional currencies were limited as traders remained cautious ahead of a series of key economic data this week. The PCE price index – the Fed‘s preferred inflation gauge – will be in focus this week.
The Japanese yen was one of the day’s better performers, rising 0.3% as traders bet that the Bank of Japan will move away from its ultra-dovish stance in 2024. Sticky Japanese inflation data released last week supported this notion.
The easing of Fed fears helped the Yen continue to recover from the 150 level. The focus is now on Japanese industrial production and retail sales data due later in the week.
The South Korean won rose 0.3%, while the Australian dollar added 0.2%, tracking some strength in commodity prices. Data on Tuesday showed that Australian retail sales unexpectedly fell in October, spurring some bets that inflation will trend lower in the coming months.
But Reserve Bank of Australia Governor Michele Bullock warned that Australian inflation was tracking global trends and that the bank would need to be cautious about raising interest rates further.
The Indian rupee was flat around record lows, while the Singapore dollar and Philippine peso were also treading water.
Dollar at 3-Month Low on Bets of No More Fed Hikes
The dollar index and dollar index futures fell slightly in Asian trading, extending overnight losses after hitting three-month lows earlier in the week.
The greenback had been battered by growing bets that the Federal Reserve will stop raising interest rates and is likely to start tapering in 2024.
However, markets were now looking for more economic data to gauge when the Fed might begin to ease policy. In addition to the PCE data, U.S. Purchasing Managers’ Index (PMI) readings for November are due this week, as well as a revised reading on third-quarter GDP.
Any signs of resilience in the U.S. economy will likely give the Fed more room to keep rates higher for longer. However, the opposite could happen if the data shows that the economy is cooling faster than expected.
Asian markets have been highly sensitive to the path of U.S. interest rates and are likely to see further gains on the prospect of a less hawkish Fed.
The Chinese yuan was little changed on Tuesday after the People’s Bank of China slightly strengthened its daily midpoint fix. However, lingering concerns over a slowing Chinese economic recovery and delayed stimulus measures limited any strength in the currency.
This week’s focus will be on Thursday’s PMI readings for November. The readings are expected to show continued weakness in economic activity after a series of disappointing readings for October.
Concerns about China have also weighed on Asian markets in recent months, given the country’s dominance as a trading hub in the region. Beijing has also remained largely cautious in rolling out more policy support for the economy.