Asia FX rises with yen, yuan on intervention watch; Dollar consolidates

Investing.com-- Most Asian currencies firmed on Monday, recovering a measure of recent losses as the dollar consolidated at one-month highs, while traders remained on guard over potential government intervention for the Chinese yuan and Japanese yen. 

Most regional currencies were nursing steep losses from last week, as the dollar blazed past seemingly dovish signals from the Federal Reserve following a surprise rate cut from the Swiss National Bank. 

Strength in the dollar limited gains in most Asian currencies on Monday.

USDCNY falls below 7.2, state banks seen intervening 

The Chinese yuan strengthened sharply, with the USDCNY pair falling 0.4% and briefly breaking below the 7.2 level. The offshore yuan's USDCNH pair fell 0.5% but remained well above the 7.2 level.

Reuters reported that the People’s Bank of China had instructed state-owned banks to buy yuan and sell dollars in the open market, to support the Chinese currency.

The yuan tumbled to four-month lows in recent sessions amid growing concerns over a sluggish Chinese economy. The PBOC also recently signaled that it still had enough headroom to further reduce its benchmark rates. 

USDJPY strengthens after verbal warning 

The Japanese yen saw some strength on Monday, with the USDJPY pair falling 0.1% after a top Japanese currency diplomat offered a verbal warning on potential intervention by the government.

Masato Kanda, vice finance minister for international affairs, said that recent weakness in the yen did not reflect the currency’s fundamentals, and that the government remained ready to respond to the yen’s slide. 

The USDJPY level surged to four-month highs last week even as the Bank of Japan raised interest rates for the first time in 17 years. But BOJ Governor Kazuo Ueda offered largely dovish signals for monetary policy in the near-term, which were a key weight on the yen.

With the USDJPY pair now trading well above the 150 level, traders were on edge over any potential intervention in currency markets, given that such USDJPY levels have attracted intervention in the past. 

Inflation data for Tokyo is also due later this week.

Dollar steadies below 1-mth high 

The dollar index and dollar index futures fell slightly from a one-month high in Asian trade, consolidating after a late-week rally. 

The greenback had shot up after dovish signals from the SNB and Bank of England suggested that the dollar will remain the only relatively high-yielding, low-risk currency in the near-term.

While the Fed still flagged at least 75 basis points of rate cuts this year, that figure will depend largely on the path of inflation. PCE price index data- the Fed’s preferred inflation gauge, is due this Friday. 

Broader Asian currencies firmed, but gains were limited in anticipation of key economic figures this week.

The Australian dollar firmed, with the AUDUSD pair rising 0.2% ahead of a monthly inflation reading due later in the week.

The South Korean won’s USDKRW pair rose 0.3%, while the Singapore dollar’s USDSGD pair firmed 0.1% ahead of inflation data due later in the day.