Asia FX rises as markets reassess Fed outlook ahead of payrolls

Investing.com -- Most Asian currencies rose slightly on Friday, recouping some of the week’s losses as markets grew uncertain over the path of U.S. monetary policy ahead of key nonfarm payrolls data due later in the day.

Regional units saw some support after the dollar tumbled on Thursday, as disappointing manufacturing data and mixed labor market readings from the U.S. saw traders question just how much economic headroom the Federal Reserve has to keep raising rates.

The Chinese yuan rose 0.1%, moving further away from six-month lows hit earlier this week. The currency was aided by a stronger daily midpoint fix from the People’s Bank of China.

A private survey released on Thursday also showed some resilience in China’s manufacturing sector, brewing some optimism over an eventual economic rebound this year, although the near-term outlook remains dour.

Optimism over China also spilled over into the Australian dollar, which rose 0.4% tracking gains in commodity prices.

The Japanese yen was flat on Friday as Bank of Japan Governor Kazuo Ueda said that the bank did not have a set time frame for when inflation will reach its 2% annual target, while reiterating that the BOJ will maintain its ultra-dovish policy for the time being.

Still, the yen was sitting on strong overnight gains, as it recovered from a six-month low hit earlier this week.

The South Korean won rose 0.2%, as data showed the country’s economy grew slightly more than expected in the first quarter. Inflation also remained steady in May from the prior month.

Broader Asian currencies advanced, while the dollar steadied in Asian trade after steep overnight losses.

The dollar index and dollar index futures moved less than 0.1% in either direction, after tumbling nearly 0.7% each on Thursday.

Data showed that U.S. manufacturing activity shrank for a seventh straight month in May, while data on the labor market showed that wages were stagnating, even as hiring continued to expand this year.

The readings pushed up bets on a Fed pause in June, with Fed Funds futures prices indicating a nearly 74% chance for a pause. But Friday’s nonfarm payrolls reading is likely to provide a clearer view on how the Fed may move.

While the reading is expected to have eased in May from the prior month, payrolls have also beat expectations for 12 of the last 13 months. A strong labor market gives the Fed more impetus and space to maintain higher rates - a scenario that bodes poorly for Asian currencies.