Forex
Asia FX inches up on China policy shift, Aussie dollar falls as RBA holds rates
Investing.com– Most Asian currencies inched higher on Tuesday as investors cheered signals of more stimulus measures from China, while the Australian dollar fell sharply after the country’s central bank held rates steady and struck a less hawkish chord.
Gains in regional currencies were limited as investors were cautious ahead of a key U.S. inflation reading, which could provide more clues on the Federal Reserve’s rate outlook before it meets next week.
Australian dollar slips after RBA decision
The Australian dollar’s pair fell 0.7%, and was hovering near a four-month low after the Reserve Bank of Australia held steady at 4.35% in its December policy meeting, citing sticky underlying inflation and a tight labour market.
The central bank said some upside risks to inflation had abated, and that it was gaining more confidence that inflation was moving towards its target range. But it still expects inflation to only fall within its 2% to 3% target range by 2026.
The RBA’s comments were regarded as slightly less hawkish, especially as recent gross domestic product data showed growth slowed sharply in the September quarter.
ANZ analysts called Tuesday’s decision a “dovish step,” and reiterated their call that the RBA will begin cutting interest rates by May 2025.
Chinese yuan inches up on stimulus cheer
The Chinese yuan’s offshore pair fell 0.2% on Tuesday, while the onshore pair ticked up 0.1%.
China has committed to implementing more proactive fiscal stimulus measures and adopting moderately looser monetary policies in 2025, the government signaled during a Politburo meeting on Monday.
Other regional currencies caught some bids on hopes of improving economic activity in China. Focus was now on China’s Central Economic Work Conference, which is set to begin on Wednesday and is likely to offer more cues on planned stimulus measures.
But trade data from China underwhelmed. While the country’s rose in November, both and read weaker than expected.
The Singapore dollar’s pair fell 0.2%, while the Philippine peso’s pair was largely unchanged.
The South Korean won’s pair inched slightly lower after rising as much as 1% in the previous session. A slew of government measures aimed at stabilizing local markets helped alleviate some concerns over an ongoing political crisis in the country, which had battered the won in recent sessions.
The Thai baht’s pair fell 0.3%, while the Indian rupee’s pair was largely muted.
Dollar steady ahead of US inflation
The , and the , were largely steady in Asia trade.
Market participants are cautiously awaiting inflation data for November, due on Wednesday, to further gauge the Fed’s interest rate trajectory.
The Fed is expected to lower rates by 25 basis points in its December meeting, scheduled for next week.
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.
Forex2 years agoForex Today: the dollar is gaining strength amid gloomy sentiment at the start of the Fed’s week
- Forex2 years ago
How is the Australian dollar doing today?
- Forex2 years ago
Unbiased review of Pocket Option broker
- Forex2 years ago
Dollar to pound sterling exchange rate today: Pound plummeted to its lowest since 1985
- Cryptocurrency2 years ago
What happened in the crypto market – current events today
- World2 years ago
Why are modern video games an art form?
- Commodities2 years ago
Copper continues to fall in price on expectations of lower demand in China
- Forex2 years ago
The dollar is down again against major world currencies
