Asia FX firms as dollar extends losses before nonfarm payrolls

Investing.com-- Most Asian currencies advanced on Friday, while the dollar eased further as traders bet that the Federal Reserve was done with its interest rate hikes, although anticipation of key nonfarm payrolls data kept gains in check. 

Regional trading volumes were also somewhat muted on account of a Japanese market holiday.

Rate-sensitive, risk-heavy units such as the South Korean won, Philippine peso and the Indonesian rupiah were the best performers for the day, rallying between 0.5% and 1%. 

The Japanese yen rose 0.1% in holiday-thinned trade, but still remained close to its weakest level in one year, at above 150 against the dollar. This kept traders wary of any intervention by the Japanese government in currency markets, after the Bank of Japan struck a less hawkish tone earlier this week.

The Chinese yuan was flat, hovering around a one-year low following a string of weak economic readings this week. A private survey showed on Friday that Chinese service sector activity grew less than expected in October, although it did accelerate slightly from the prior month. 

Dollar weak on easing rate hike fears, nonfarm payrolls in focus

Broader Asian currencies advanced, while the dollar nursed some losses for the week after the Fed kept rates steady, and offered somewhat dovish signals on more interest rate hikes. 

This spurred increased bets that the central bank was done with its rate hikes for the year, and will begin cutting rates from mid-2024. The dollar index and dollar index futures fell slightly in Asian trade, and were down 0.4% for the week.

But the dollar still faced one more major test on Friday, with key nonfarm payrolls data for October due later in the day. 

Any signs of resilience in the labor market gives the Fed more impetus to hike interest rates, which could in turn reverse some of the dollar weakness seen this week. The Fed still left the door open for one more rate hike this year, although the move will be largely dependent on more economic data. 

Friday’s data is expected to show a sharp decline in payrolls. But the data has also consistently beaten market estimates so far in 2023, as the U.S. labor market remained strong. 

Australian dollar set for strong week as RBA rate hike looms 

The Australian dollar fell 0.1%, but was trading up 1.5% for the week amid increasing bets that the Reserve Bank of Australia (RBA) will hike interest rates when it meets this coming Tuesday. 

This notion was furthered by stronger-than-expected retail sales data for the third quarter, which indicated that strong retail spending could potentially underpin inflation in the coming months. 

Recent signs of sticky Australian inflation, coupled with a resilient labor market and retail spending are expected to spur the RBA into raising interest rates by at least 25 basis points next week.

The bank had hiked rates by a cumulative 400 basis points over the past year, but had kept them on hold since May to gauge the effects of the rate hikes on the Australian economy.