Asia FX rises as easing Fed fears put dollar at 3-month low

Investing.com-- Most Asian currencies advanced on Tuesday amid growing conviction that the Federal Reserve was done raising interest rates, which in turn put the dollar at a three-month low.

Still, gains in most regional currencies were limited as traders remained wary before a string of key economic readings this week. The PCE price index- the Fed’s preferred inflation gauge- will be a major point of focus this week.

The Japanese yen was among the better performers for the day, rising 0.3% as traders bet that the Bank of Japan will pivot away from its ultra-dovish stance in 2024. Sticky Japanese inflation data released last week furthered this notion.

Easing fears of the Fed helped the yen recover further from the 150 level. Focus is now on industrial production and retail sales readings from Japan, due later in the week. 

The South Korean won rose 0.3%, while the Australian dollar added 0.2% tracking some strength in commodity prices. Data showed on Tuesday that Australian retail sales unexpectedly shrank in October, spurring some bets that inflation will trend lower in the coming months.

But Reserve Bank of Australia Governor Michele Bullock warned that Australian inflation was tracking global trends, and that the bank needed to be cautious in raising interest rates further.

The Indian rupee was flat around record lows, while the Singapore dollar and Philippine peso also tread water. 

Dollar at 3-mth low on bets of no more Fed hikes 

The dollar index and dollar index futures fell slightly in Asian trade, extending overnight losses after sinking to three-month lows at the start of the week.

The greenback was walloped by growing bets that the Fed will raise interest rates no more, and is likely to begin trimming rates in 2024. 

But markets were now awaiting more economic cues to gauge just when the Fed could begin loosening policy. Apart from the PCE data, U.S. purchasing managers index (PMI) readings for November are also due this week, as is a revised reading on third-quarter GDP. 

Any signs of resilience in the U.S. economy is likely to give the Fed more headroom to keep rates higher for longer. But the opposite could happen if data shows the economy cooling faster than expected. 

Asian markets have been largely sensitive to the path of U.S. rates, and are likely to see more gains on the prospect of a less hawkish Fed. 

Chinese yuan flat, key PMIs in focus 

The Chinese yuan moved little on Tuesday following a marginally stronger daily midpoint fix by the People’s Bank of China. But persistent concerns over a slowing Chinese economic rebound and laggard stimulus measures limited any strength in the currency.

Focus this week is squarely on PMI readings for November, due on Thursday. The readings are expected to show continued weakness in business activity after a swathe of disappointing readings for October. 

Concerns over China have also weighed on Asian markets in recent months, given the country’s dominance as a trading hub in the region. Beijing has also remained largely conservative in rolling out more policy support for the economy.