Forex
Asia FX rises on Fed pivot hopes; NZ dollar boosted by hawkish RBNZ
Investing.com– Most Asian currencies rose on Wednesday as less hawkish signals from Federal Reserve officials ramped up hopes for an early interest rate cut in 2024, which put the dollar near four-month lows.
The was the best performer for the day, rallying nearly 1% after the Reserve Bank of New Zealand , but flagged potential rate increases in 2024 as inflation remained sticky.
The RBNZ hiked its forecast for peak interest rates in 2024- which saw analysts at Westpac now forecasting a 75% probability of an at least 25 basis point hike in the coming months.
Asia FX up, dollar near 4-mth low after Fed officials talk pivot
Broader Asian currencies advanced after Fed officials said in overnight comments that the bank was likely done hiking interest rates, and could even consider an early interest rate cut if inflation falls further.
Traders began pricing in an the Fed will trim rates by as early as March 2024. Focus was now on data- the Fed’s preferred inflation gauge- due later in the week.
The and plummeted following the Fed comments, and fell between 0.1% to 0.2% in Asian trade on Wednesday. The two indicators were also at their weakest level since early-August.
Most Asian currencies logged strong gains on the prospect of a Fed pivot, given that it points to easing pressure on risk-heavy yields. The rose 0.2% to a near two-month high, and moved further away from the 150 level. Focus this week was also on Japanese and data, due on Thursday.
But the yen curbed some recent gains after Bank of Japan board member Seiji Adachi said that it was still too early to consider a pivot away from the central bank’s ultra-dovish stance.
The rate-sensitive was flat after rallying 0.8% in overnight trade, while the led gains across Southeast Asian currencies with a 0.6% spike.
The lagged its peers, sticking close to record lows amid pressure from India’s large trade deficit. A spike in oil prices also weighed on the currency.
The also lagged its peers for the day as data showed (CPI) inflation grew less than expected in October, dampening bets on more interest rate hikes by the Reserve Bank of Australia. But CPI still remained well above the RBA’s target range, while core inflation remained sticky.
Chinese yuan firms, PMIs in focus
The rose 0.3% following a stronger daily midpoint fix from the People’s Bank of China, briefly touching a five-month high of 7.1201 to the dollar.
While the yuan saw a strong run of gains through November, concerns over a sluggish Chinese economy still persisted, especially after a string of weak economic readings for October. This kept the currency trading above the psychologically important 7 to the dollar level.
Focus this week was on purchasing managers index (PMI) data for November, due on Thursday. The reading is expected to show a sustained decline in , highlighting continued weakness in China’s biggest economic engines.
Investing.com – The US dollar rose in thin holiday-impacted trade Tuesday, retaining recent strength as traders prepared for fewer Federal Reserve rate cuts in 2025.
At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 107.905, near the recently hit two-year high.
Dollar remains in demand
The dollar has been in demand since the Federal Reserve outlined a hawkish outlook for its interest rates after its last policy meeting of the year last week, projecting just two 25 bp rate cuts in 2025.
In fact, markets are now pricing in just about 35 basis points of easing for 2025, which has in turn sent US Treasury yields surging, boosting the dollar.
The two-year Treasury yield last stood at 4.34%, while the benchmark 10-year yield steadied near a seven-month high at 4.59%.
“We think this hawkish re-tuning of the Fed’s communication will lay the foundation for sustained dollar strengthening into the new year,” said analysts at ING,in a note.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Euro near to two-year low
In Europe, fell 0.1% to 1.0396, near a two-year low, with the set to cut interest rates more rapidly than its US rival as the eurozone struggles to record any growth.
The ECB lowered its key rate earlier this month for the fourth time this year, and President Christine Lagarde said earlier this week that the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“If the incoming data continue to confirm our baseline, the direction of travel is clear and we expect to lower interest rates further,” Lagarde said in a speech in Vilnius.
Inflation in the eurozone was 2.3% last month and the ECB expects it to settle at its 2% target next year.
traded largely flat at 1.2531, with sterling showing signs of weakness after data showed that Britain’s economy failed to grow in the third quarter, and with Bank of England policymakers voting 6-3 to keep interest rates on hold last week, a more dovish split than expected.
Bank of Japan stance in focus
In Asia, fell 0.1% to 157.03, after rising as high as 158 yen in recent sessions, after the signaled that it will take its time to consider more interest rate hikes.
edged 0.1% higher to 7.3021, remaining close to a one-year high as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
Investing.com– Most Asian currencies moved in a tight range on Tuesday, while the dollar extended overnight gains as traders positioned for a slower pace of interest rate cuts in the coming year.
Trading volumes were muted before the Christmas break, while most regional currencies were nursing steep losses against the greenback for the year.
Asian currencies weakened sharply last week after the Federal Reserve effectively halved its outlook for rate cuts in 2025, citing concerns over sticky U.S. inflation.
Dollar near 2-year high on hawkish rate outlook
The and both rose about 0.1% in Asian trade, extending overnight gains and coming back in sight of a two-year high hit last week.
While the greenback did see some weakness after data read lower than expected for November, this was largely offset by traders dialing back expectations for interest rate cuts in 2025.
The Fed signaled only two rate cuts in the coming year, less than prior forecasts of four.
Higher U.S. rates diminish the appeal of risk-driven Asian markets, limiting the amount of capital flowing into the region and pressuring regional markets.
Asia FX pressured by sticky US rate outlook
Most Asian currencies weakened in recent sessions on the prospect of slower rate cuts in the U.S., while uncertainty over local monetary policy and slowing economic growth also weighed.
The Japanese yen’s pair fell 0.1% on Tuesday after rising as high as 158 yen in recent sessions, after the Bank of Japan signaled that it will take its time to consider more interest rate hikes.
The Australian dollar’s pair fell 0.2% after the minutes of the Reserve Bank’s December meeting showed policymakers saw an eventual easing in monetary policy, citing some progress in bringing down inflation. But they still flagged potential upside risks for inflation.
The Chinese yuan’s pair rose 0.1% and remained close to a one-year high, as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
The Singapore dollar’s pair rose 0.1%, while the Indian rupee’s pair rose 0.1% after hitting record highs above 85 rupees.
Investing.com — The dollar has surged past its post-2022 range, buoyed by U.S. economic exceptionalism, a widening interest rate gap, and elevated tariffs, setting the stage for further gains next year.
“Our base case is that the dollar will make some further headway next year as the US continues to outperform, the interest rate gap between the US and other G10 economies widens a little further, and the Trump administration brings in higher US tariffs,” Capital Economics said in a recent note.
The bullish outlook on the greenback comes in the wake of the dollar breaking above its post-2022 trading range, reflecting renewed confidence among investors driven by robust U.S. economic data and policy expectations.
A key risk to the upside call on the dollar is a potential economic rebound in the rest of the world, similar to what occurred in 2016, Capital Economics noted.
Following the 2016 U.S. election, economic activity in the rest of the world rebounded, while Trump’s tax cuts didn’t materialize until the end of 2017, and the Fed took a more dovish path than discounted, resulting in a 10% drop in the DXY on the year, which was its “worst calendar year performance in the past two decades,” it added.
While expectations for a recovery in Europe and Asia seem far off, a positive surprise for global growth “should be ruled out”, Capital Economics said.
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