Forex
Asia FX rises ahead of nonfarm payrolls; yen firms amid intervention watch
Investing.com– Most Asian currencies advanced slightly on Friday, recovering further as the dollar weakened ahead of key payrolls data, while the Japanese yen strengthened sharply amid speculation over potential government intervention.
Elsewhere, the firmed slightly with the Labour party set to log a sweeping win in the UK general election.
The and sank to three-week lows in holiday-thinned trade, while growing expectations of interest rate cuts also dented the greenback. Focus was now squarely on key data, due later on Friday, for more cues on interest rates.
While a softer dollar did benefit Asian markets, gains were limited as a potential escalation in tensions between China and Taiwan dented sentiment.
Japanese yen firms sharply, USDJPY sinks amid intervention chatter
The Japanese yen was among the best performers in Asia, with the pair, which gauges the number of yen needed to buy one dollar, sinking 0.4% to 160.63.
The sharp strengthening in the yen sparked speculation over whether the Japanese government had intervened in currency markets to support the currency. The government was expected to potentially intervene around the July 4 U.S. market holiday, taking advantage of lower trading volumes.
Recent weakness in the yen was spurred by growing bets that the Bank of Japan will have limited headroom to tighten policy further, amid persistent weakness in the Japanese economy.
Weak data for May furthered this notion on Friday.
Chinese yuan flat as Taiwan tensions increase
The Chinese yuan lagged its peers, with the pair hovering around seven-month lows.
Sentiment towards China was further dented by reports that Beijing seized a Taiwanese fish trawler, and had also deployed aircraft around the Taiwan strait.
The reports came following an earlier report that Taiwanese firms were withdrawing their staff from China, after Beijing outlined strict punishments for proponents of an independent Taiwan.
Any escalation in tensions with Taiwan could draw more scrutiny towards China, attracting more sanctions from the West.
The Taiwan dollar’s pair fell 0.2%.
Other Asian currencies advanced slightly, as a U.S. market holiday made for scant trading cues. The Australian dollar’s pair rose 0.1%.
The South Korean won’s pair fell 0.1%, while the Singapore dollar’s pair fell 0.1%.
The Indian rupee’s pair fell slightly, but remained close to recent record highs.
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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