Asia FX muted as PMIs boost dollar, Aussie rises on rate hike bets

Investing.com-- Most Asian currencies fell slightly on Wednesday as strong overnight data boosted the dollar, while the Australian dollar rose sharply as a strong inflation reading fueled expectations for an interest rate hike in November. 

The Australian dollar jumped 0.5% as data showed consumer price index inflation grew slightly more than expected in the third quarter. The reading came just a few days after Reserve Bank of Australia Governor Michele Bullock warned that sticky inflation could elicit more interest rate hikes.

This saw markets begin pricing in the possibility of a rate hike when the bank meets on November 7. ANZ analysts now expect a 25 basis point hike in November, compared to earlier expectations of a hike in December. 

The prospect of a rate hike bodes well for the Australian dollar, which recently sank to 2023 lows amid concerns over slowing economic growth in the country. 

Optimism over China- Australia’s biggest trading partner- also aided the Australian dollar, as Beijing announced a 1 trillion yuan ($1=3.3122 yuan) bond issuance to fuel infrastructure development. The move is expected to fuel increased commodity demand in China, particularly for metals. 

China’s yuan weakened after the announcement, coming close to a one-year low, given that the bond issuance will also ramp up the country’s already elevated debt levels. 

Among other Asian units, the South Korean won lost 0.3% as data showed consumer confidence deteriorated in October. The Indian rupee fell 0.1%, but saw some relief as oil prices tumbled this week.

The Japanese yen moved little, remaining within sight of the 150 level which traders believe will attract intervention in currency markets by the government. The Bank of Japan recently intervened in bond markets to tame overheated yields, which also put more pressure on the yen.

The currency has been hit hard by a widening gap between local and U.S. interest rates, and is among the worst-performing Asian units this year. 

Dollar steadies with more economic cues, Fed meeting in focus 

The dollar index and dollar index futures fell slightly in Asian trade, but were sitting on strong overnight gains after data showed that U.S. business activity unexpectedly grew in October. 

The readings pointed to continued resilience in the U.S. economy, which in turn gives the Federal Reserve more headroom to keep raising interest rates. Fed Chair Jerome Powell is set to speak at a conference later in the day, after he had last week reiterated that U.S. rates will remain higher for longer.

Third-quarter gross domestic product data is due on Thursday, and is expected to provide more cues on the world’s largest economy. Economic strength gives the Fed more headroom to keep rates higher.

Still, the central bank is widely expected to keep rates on hold when it meets next week.