Forex
Asia FX muted, dollar steady amid rate-cut uncertainty; Yen up on BOJ
© Reuters.
Investing.com– Most Asian currencies kept to a tight range on Wednesday, while the dollar steadied near six-week highs as markets awaited more cues on when the Federal Reserve could begin trimming interest rates.
The was an outlier for the day, rising 0.3% after Bank of Japan Governor Kazuo Ueda offered more signals on a potential end to the bank’s ultra-dovish policies. But Ueda gave no clear cues on when the BOJ will pivot away from negative rates, and said that easy monetary policy will remain for the near-term.
The yen was also aided by stronger-than-expected for December, with Japanese exports to China rising for the first time in 13 months.
But purchasing managers index (PMI) data for January showed a sustained decline in Japanese , while grew further in December.
Broader Asian currencies kept to a tight range amid persistent concerns over higher-for-longer U.S. rates. Most regional units had clocked steep losses over the past week as traders began pricing out bets on a March 2024 rate cut.
traded sideways, but saw some strength this week after Bloomberg reported that the Chinese government was planning a massive 2 trillion yuan ($278 billion) support package for local stock markets.
The report fueled optimism that the government will roll out more support for the economy. But broader sentiment towards China remained muted amid persistent concerns over a sluggish post-COVID economic recovery.
Concerns over China kept most Asian currencies under pressure, particularly those with trade exposure to the country.
The fell 0.1%, even as PMI data for January showing some improvement in and activity. The Aussie, which is usually seen as an indicator of broader risk appetite towards Asian markets, was also trading close to seven-week lows.
The was flat, while the lost 0.1%.
Dollar steadies near 6-week high with econ. data, Fed meeting on tap
The and both fell 0.1% in Asian trade after surging to their highest levels since early-December in the prior session.
The greenback marked a strong start to 2024 as strong inflation and labor market data saw traders largely scale back expectations for early interest rate cuts by the Fed.
This notion was exacerbated by a series of hawkish comments from Fed officials over the past week.
Focus now turns to fourth-quarter data, due on Thursday, and data- the Fed’s preferred inflation gauge- due on Friday. Any signs of resilience in economic growth and inflation give the Fed more impetus to keep rates higher for longer.
The readings also come just days before the , where the bank is widely expected to maintain rates at 23-year highs.
But the Fed is still expected to eventually begin trimming rates this year, which will keep traders watching for any such cues from the meeting.
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The People’s Bank of China (PBoC) responded to increasing demand for the US dollar by adjusting its cross-border macroprudential parameter.
The central bank’s decision to raise the parameter from 1.50 to 1.75 allows domestic corporations and financial institutions to engage in more cross-border borrowing.
The adjustment came as the foreign exchange settlement balance for banks’ clients showed a deficit of $10.5 billion, marking the first negative reading since July 2024. This deficit contrasts with the previous month’s figures. The rise in demand for the US dollar was particularly noticeable in service trade transactions.
Recent weeks have seen domestic importers actively purchasing US dollars through foreign exchange forwards. This move is a strategy to hedge against potential risks associated with tariffs, which has contributed to an upward push on forward points.
The PBoC’s policy change on January 13 reflects efforts to manage market expectations regarding foreign exchange rates.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
On Wednesday, Macquarie analysts provided insights into the potential future movements of the Canadian dollar (CAD) against the US dollar (USD).
They indicated that the fears of heavy-handed US import tariffs are unlikely to materialize immediately after the inauguration, suggesting that the USD’s rally against the EUR, CAD, and other currencies might not extend beyond the first quarter of the year.
The analysts highlighted that despite the initial threats of tariffs, Canada is expected to grow even closer to the United States in the coming years. This projection is based on several factors including Canada’s domestic politics, foreign policy, border and immigration policies, as well as trade and capital account flows, all of which demonstrate aligned interests with the US. The anticipated renegotiation of the United States-Mexico-Canada Agreement (USMCA) is expected to cement this relationship further.
According to Macquarie, this closer relationship between Canada and the US will lead to a much more stable exchange rate in the future. They predict that as a result of these developments, the USD/CAD pair will experience a downward drift, potentially reaching a mid-year target of 1.35.
The stability in the USD/CAD exchange rate is seen as a reflection of the ‘merger trend’ context, where the two economies continue to integrate and align, leading to less exchange rate fluctuation. Macquarie’s analysis projects a calmer period ahead for the currency pair, which has historically been influenced by trade policies and geopolitical factors.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Investing.com – The US dollar lifted slightly Thursday, but remained in a tight trading range ahead of a speech by President Donald Trump at the World Economic Forum.
At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher to 108.150, after starting the week with a drop of over 1%.
Dollar treads water
The dollar has largely treaded water over the last couple of days as traders await more clarity over President Donald Trump’s plans for tariffs, following the sharp fall on Monday as his first day in office brought a barrage of executive orders, but none on tariffs.
He has subsequently talked about levies of around 25% on Canada and Mexico and 10% on China from Feb. 1, as well as mentioning duties on European imports, but without concrete action.
Trump speaks later in the session at the World Economic Forum in Davos, Switzerland, and traders are eagerly awaiting any comments on this topic as well as for his position on major geopolitical and economic issues such as the Ukraine-Russia war and the economic rivalry with China.
“This week’s dollar correction has not gone too far. Despite the heavy one-way positioning of the dollar, investors lack clarity on the timing of Trump’s tariff threats, preventing them from reducing dollar holdings,” said analysts at ING, in a note.
Also causing traders to pause for breath is the spate of central bank policy decisions due over the next week, including the on Friday, ahead of the and the next week.
Euro lower ahead of ECB meeting
In Europe, slipped 0.1% lower to 1.0404, with the single currency weak ahead of next week’s ECB meeting, with an interest rate cut largely seen as a done deal.
“This week’s EUR/USD bounce has been pretty muted so far,” said ING. “There is no way investors can expect to hear an ‘all-clear’ signal on tariffs. And keeping trading partners off balance/guessing is a tactic that kept the dollar reasonably well bid during Trump’s last tariff regime in 2018-19.”
traded 0.1% lower to 1.2304, while rose 0.2% to 11.3035 ahead of a policy-setting meeting by the later in the session.
“Norges Bank is widely expected to keep rates on hold today,” ING said. “On the whole, the key variables monitored by NB have not clearly argued a rate cut should be pushed beyond March. Also, the risks to global growth related to Trump’s protectionism plans should encourage policymakers to allow some breathing room with a rate cut before the end of the first quarter.”
BOJ meeting to conclude Friday
In Asia, traded largely unchanged at 156.47, ahead of the Bank of Japan’s two-day policy meeting, which concludes on Friday.
The BoJ is widely expected to raise interest rates as recent inflation and wage data have been encouraging, and the central bank is likely to signal further interest rate hikes if the economy maintains its recovery
traded 0.2% higher to 7.2877, with the Chinese currency weaker on fears Trump will confirm US tariffs on Chinese imports, hitting the second largest economy in the world.
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