Asia FX advances as rate cut bets put dollar near 2-mth low

Investing.com-- Most Asian currencies firmed on Thursday, tracking weakness in the dollar as soft labor data continued to trickle in, ramping up bets that the Federal Reserve will begin cutting rates in the coming months.

The greenback hovered just above a two-month low, and remained on the backfoot as expectations of rate cuts drove traders into more risk-driven assets. U.S. Treasury yields also retreated.

Dollar near 2-mth low, Sept rate cut bets grow 

The dollar index and dollar index futures both fell about 0.2% in Asian trade, remaining close to their weakest levels since early-April.

The greenback saw renewed weakness on Wednesday after soft ADP employment data pointed to further cooling in the labor market.

The reading came after a soft job openings print, and also set the stage for a soft nonfarm payrolls reading on Friday. 

Other economic indicators also pointed to some cooling in the world’s biggest economy, which could present a softer outlook for inflation and give the Fed more confidence to begin cutting rates. 

Traders were seen increasing their bets that the central bank will cut rates by 25 basis points in September. 

This notion boosted most Asian currencies. The Japanese yen’s USDJPY pair fell 0.3% and remained well below recent peaks. The Bank of Japan is set to meet next week and is expected to potentially tighten policy then.

The Australian dollar’s AUDUSD pair rose nearly 0.3%, even as trade data showed the country’s exports and imports fell sharply in April. But its trade surplus widened. 

The Chinese yuan’s USDCNY pair fell marginally, but remained close to six-month highs hit in May. Sentiment towards China soured in recent sessions as traders awaited more cues on the country’s plans to shore up economic growth. Key trade data was also on tap this week. 

The Singapore dollar’s USDSGD pair fell 0.2%, while the South Korean won’s USDKRW pair fell 0.1% in holiday trade.

Indian rupee weak amid post-election volatility 

The Indian rupee’s USDINR pair, which gauges the number of rupees needed to buy one dollar, remained close to record highs of over 83 rupees on Thursday.

The Indian currency saw wild swings this weeks, briefly hitting record lows after the results of the 2024 general elections showed the incumbent BJP-led alliance won a much smaller majority than expected. The results presented a difficult third term for Prime Minister Narendra Modi, especially with regards to rolling out economic reforms.