Forex
Asia FX weakens as China PMIs disappoint; Dollar steady before PCE data
Investing.com– Most Asian currencies drifted lower on Friday, with the Chinese yuan moving back towards six-month lows after disappointing business activity readings, while the dollar steadied in anticipation of key inflation data.
Regional currencies also remained under pressure amid persistent concerns over high-for-longer U.S. interest rates, as hawkish comments from Federal Reserve officials continued to trickle in.
But they saw some relief on Thursday, as the dollar fell from over two-week highs following a softer reading on gross domestic product data.
Dollar steadies from overnight losses, PCE test awaits
The and rose 0.1% in Asian trade, steadying from overnight losses after a revised reading on first-quarter showed the economy grew less than initially expected.
The reading signaled cooling in the U.S. economy, driving up some hopes that the Fed could eventually soften its hawkish stance to foster economic growth.
But fears of sticky inflation and high interest rates remained squarely in focus, with data- the Fed’s preferred inflation gauge- due later on Friday.
The reading is expected to show inflation cooled slightly in April, but remained well above the Fed’s 2% annual target.
Chinese yuan weakens as PMIs disappoint; more stimulus in focus
The Chinese yuan’s pair rose 0.1%, moving back towards six-month highs hit earlier this week.
Purchasing managers index data showed that Chinese business activity deteriorated in May after some improvement over the past two months. unexpectedly fell back into contraction territory, while grew at a slower-than-expected pace.
While the readings presented renewed headwinds for the Chinese economy, they also fueled bets on increased stimulus spending from Beijing to support growth. But said spending- which is likely to entail looser monetary conditions- is likely to bode poorly for the yuan.
Other China-exposed currencies moved in a flat-to-low range. The Australian dollar’s pair rose slightly, while the South Korean won’s pair rose 0.5%.
The Singapore dollar’s pair rose nearly 0.1%.
Among other Asian currencies, the Japanese yen’s pair moved little on Friday after falling sharply in overnight trade, tracking some weakness in the dollar.
showed inflation in Japan’s capital grew as expected in May, although it still remained relatively weak. Soft inflation bodes poorly for the yen, as it gives the Bank of Japan less impetus to begin raising interest rates.
The Indian rupee’s pair remained close to recent record highs, above 83 rupees, before the results of the 2024 general elections on June 4.
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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