Forex
Asia FX firms with Fed on tap; Japanese yen volatile after BOJ
Investing.com– Most Asian currencies rose on Wednesday before more cues on interest rate cuts from the Federal Reserve, while the Japanese yen was volatile following mixed signals from the Bank of Japan.
The Australian dollar was an exception among its regional peers, with the currency sliding to a three-month low after data showed mild easing in core consumer price index inflation- which diminished the prospect of interest rate hikes by the Reserve Bank of Australia.
Yen volatile, USDJPY swings on mixed BOJ signals
The Japanese yen was volatile, with the pair swinging in a range of 0.3% around 0% after the BOJ struck a mixed chord during its meeting.
The central bank hiked its rate by 15 basis points to around 0.25%- the top end of market expectations.
But it also said that it will only halve its pace of Japanese Government Bond purchases- to 3 trillion yen ($19.5 billion) from 6 trillion yen by the first quarter of 2026. The BOJ will reduce its JGB purchases by 400 billion yen each quarter.
BOJ members also lowered their growth and inflation forecasts for fiscal 2024, which sparked uncertainty over just how much headroom the central bank had to tighten policy.
Still, the yen was sitting on strong gains through July as a mix of unwinding carry trade and suspected government intervention sparked buying in the currency.
Dollar dips with Fed, rate cut cues in focus
The and fell 0.2% each in Asian trade, seeing some volatility this week as traders positioned for a Fed later on Wednesday.
The central bank is widely expected to keep rates unchanged. But any signals on plans to cut rates will be closely watched, especially in the wake of some soft inflation readings and dovish comments from Fed officials.
General consensus is for a 25 basis point cut in September, according to .
Focus this week is also on key data, due on Friday.
Australian dollar sinks, AUDUSD as 3-mth low on soft inflation
The Australian dollar was the worst performer in Asia, with the pair sinking 0.5% to its weakest level in three months.
The Aussie’s decline was driven chiefly by some soft CPI data for the June quarter. While overall grew as expected in the quarter, lower drove up hopes that inflation will ease in the coming months, reducing the need for a rate hike by the RBA.
Broader Asian currencies firmed, tracking weakness in the dollar. The Chinese yuan’s pair fell 0.2% as soft data and positive government comments ramped up expectations for more stimulus measures in the country.
The South Korean won’s pair fell 0.3%, while the Singapore dollar’s pair moved sideways.
The Indian rupee’s pair hovered near record highs of 83.8, seeing little relief from a softer dollar.
Investing.com – The US dollar has gained strongly since the US presidential election in November, but these gains are unlikely to limit the hit that US customers are likely to face from tariffs, according to UBS.
At 08:25 ET (13:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 108.950, but was around 1.5% higher over the last month, and remained not far from the more than two-year high seen last week.
The theory is that a stronger dollar lowers US import prices, said analysts at UBS, in a note dated Jan. 17. Those lower prices would partially offset the tax payments US consumers must make to the US Treasury when buying imports.
If the US paid for the Chinese imports, then a stronger dollar would automatically reduce the amount of dollars paid (fewer dollars are exchanged to pay the renminbi price). However, the US pays for practically all its imports in dollars, so this does not happen.
If the dollar strengthens, the dollar price is unchanged, unless the exporter consciously chooses to lower the dollar price of the goods sold, UBS added.
An exporter to the US might deliberately lower dollar prices, as (in dollar terms) local currency costs are lower. But local currency costs are only a fraction of a manufacturer’s costs.
“A Chinese electronics manufacturer, importing chips (bought in dollars) and exporting computers to the US (in dollars), will probably keep their dollar prices stable—ignoring currency moves,” UBS added.
The US dollar strengthened against China’s renminbi in 2016 and 2018/19, and US import price inflation for products from China showed no noticeable break with earlier trends.
The preference seems to have been to reroute supply chains as a way of avoiding trade taxes.
Investing.com – The US dollar slumped Monday following a report that indicated that President-elect Donald Trump was set to delay imposing trade tariffs immediately upon his inauguration, an expectation which had boosted the US currency following his November election victory.
At 09:20 ET (14:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 1.1% lower to 108.020, having climbed to a more than two-year high last week.
The Wall Street Journal reported Monday that Trump is planning to issue a broad memorandum on his inauguration that directs federal agencies to study trade policies and evaluate US trade relationships with China and America’s continental neighbors—but stops short of imposing new tariffs on his first day in office.
The memo, which the WSJ has seen, suggests that debates are still ongoing within the incoming administration over how to deliver on Trump’s campaign trail promises for hefty tariffs on imports from trade rivals such as China.
The dollar has gained around 4% since the November presidential election as traders anticipated Trump’s policies will be inflationary, necessitating higher interest rates for a longer period.
“Financial markets are on tenterhooks to see what executive orders newly elected US President Donald Trump will enact on his first day,” said analysts at ING, in a note.
“FX markets are most interested in what he has to say about tariffs and what kind of pain the Oval Office plans to inflict on major trade partners.”
Bank of America (BofA) noted a significant increase in repo rates during the week of January 13 due to heightened liquidity demand triggered by tax payments and limited funding provided by the People’s Bank of China (PBoC).
The liquidity squeeze was most noticeable on January 16, the day following the tax payment deadline, with DR007 and R007 reaching 2.34% and 4.19%, respectively.
The PBoC maintained its stance on defending the exchange rate stability, resulting in the tightness of (RMB) liquidity being felt in the offshore market as well.
On January 9, the central bank announced it would issue RMB60 billion of 6-month bills in Hong Kong, a significant increase compared to previous issuances. The coupon rate of 3.4% was notably higher than the December issuance, reflecting the tightness of CNH liquidity and subdued demand from investors.
The December FX settlement balance by banks’ clients fell further to a deficit of US$10.5 billion, the first deficit reading since July 2024. A key change from the previous month was a sharp increase in USD demand for service trade. Reports also suggest that domestic importers have been actively purchasing USD via FX forward to hedge against tariffs risk in recent weeks, which has been exerting upward pressure on forward points.
On January 13, the PBoC increased the cross-border macroprudential parameter to 1.75 from 1.50. This move allows domestic corporations and Financial Institutions (FIs) to conduct more cross-border borrowing.
Given the widened interest rate gap between China and overseas, BofA believes this is more of a symbolic move by the PBoC to anchor market’s expectation on FX.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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