Asia FX creeps higer as dollar, yields retreat before econ data storm

Investing.com-- Most Asian currencies advanced on Tuesday, reversing some recent losses as the dollar retreated from 2023 peaks before a string of key economic readings due this week, although risk appetite still remained weak.

Soft purchasing managers index (PMI) readings from Japan and Australia also limited any major gains in regional currencies, as the data showed that business activity in some of Asia’s biggest economies was struggling to pick up.

The Japanese yen rose 0.1% after briefly sinking as low as 150 to the dollar earlier this week. Traders believe that a breach of the level will attract currency market intervention by the government.

Intervention in the bond market by the Bank of Japan, to tame overheated yields- also pressured the yen over the past week. 

The Australian dollar rose 0.3%, recovering from a near 11-month low tracking some optimism over China. 

Chinese yuan rises on some U.S.-China optimism

The Chinese yuan added 0.2%, aided chiefly by news of a meeting between U.S. and Chinese officials to discuss domestic and global macroeconomic issues. 

The meeting, which was virtual, marked some improvement in ties between the world’s largest economies, which were at lifetime lows amid disagreements over semiconductors, Taiwan and allegations of espionage and human rights abuses.

The meeting also pushed up some hopes that an ongoing trade war between the two countries will not escalate further, even as China recently blocked the export of key battery-making materials in retaliation for U.S. curbs on chip exports to the country.

But sentiment towards China still remained weak, especially amid concerns over a debt meltdown in its massive property market. These concerns had battered the yuan in recent weeks, putting it at a near one-year low. 

Among other Asian currencies, the South Korean won and Singapore dollar rose 0.1% each, while the Indian rupee added 0.1% in holiday trade. 

The Thai baht was among the best performers for the day, rallying 0.5% on data that showed a substantial improvement in the country’s trade balance. 

Dollar weakens as yields cool, econ data barrage in focus 

The dollar index and dollar index futures fell 0.1% each in Asian trade, extending overnight losses after a recent rally in Treasury yields appeared to have run out of steam.

10-year yields retreated from 16-year highs on Monday, although they still remained in sight of the 5% level. 

Focus this week is largely on a string of U.S. economic readings, starting with PMI data due later on Tuesday, after which third-quarter gross domestic product data is due on Thursday.

Then, on Friday, PCE inflation data- the Federal Reserve’s preferred inflation gauge- is set to close out the week. Markets will be watching for any signs of continued resilience in the U.S. economy, which gives the Fed more headroom to keep interest rates higher.

Federal Reserve Chair Jerome Powell is set to speak on Wednesday, potentially offering up more cues on monetary policy before a Fed meeting next week.

Still, the prospect of higher rates bodes poorly for Asian markets, given that they narrow the gap between risky and low-risk yields.