Forex
Asia FX set for yearly losses as strong dollar weighs; China factory data in focus
Investing.com– Most Asian currencies edged lower on Tuesday and headed for yearly losses as the dollar remained strong heading into 2025, while the Chinese yuan weakened after data showed the country’s factory activity expanding at a slower pace.
The was 0.1% weaker in Asian trade but remained near a 2-year high it touched earlier in the month. The also ticked lower.
Asian currencies have weakened sharply this year as the Federal Reserve’s interest rate outlook, and fears about a potential U.S-China trade war under Donald Trump’s administration, have eroded risk sentiment.
The Fed’s recent signal of fewer cuts in 2025 has provided renewed strength to the dollar and created downward pressure on Asian currencies.
Chinese yuan slips as factory activity expands at a slower-than-expected pace
The Chinese yuan’s onshore pair rose 0.2% on Tuesday, while the offshore pair was largely unchanged.
China’s expanded for a third straight month in December as a raft of fresh stimulus measures continued to provide support, purchasing managers index data showed on Tuesday. However, the rise was slightly lower than market expectations and below the previous month’s reading.
Markets are holding out for more clarity on Beijing’s plans for stimulus measures in the coming year. Recent reports suggested that the country will ramp up fiscal spending to support economic growth.
Asian currencies set for yearly declines
The Japanese yen’s pair fell 0.3% on Tuesday after it reached a five-month high in the previous session. The yen was set to lose more than 10% against the U.S. dollar for the year.
The Singapore dollar’s pair was largely unchanged but headed for a yearly rise.
The Australian dollar’s was slightly lower on Tuesday.
The Indian rupee’s pair inched up 0.1%, and was on track to rise more than 3% this year. The rupee has been hitting fresh record lows against the U.S. dollar this month.
The Thai baht’s pair rose 0.3%, while the Indonesian rupiah’s pair gained 0.2% on Tuesday.
South Korean won slips amid deepening political unrest
The South Korean won’s pair edged up 0.1% on Tuesday. The won has weakened nearly 6% against the U.S. Dollar in December, which saw a failed imposition of martial law in the country.
The won is the worst-performing currency amongst its Asian peers, tracking an over 12% decline in 2024.
In the latest updates, A South Korean court approved an arrest warrant on Tuesday for President Yoon Suk Yeol, who has been impeached and suspended from office following his December 3 decision to impose martial law.
The Corruption Investigation Office for High-ranking Officials (CIO) stated that the Seoul Western District Court granted the warrant sought by investigators probing Yoon’s brief imposition of martial law.
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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