Most Asian currencies moved within a tight range on Monday as the Asia FX market reacted to recent developments in China. The yuan remained steady after the People’s Bank of China (PBOC) cut its interest rates slightly more than expected. While the dollar hovered near recent peaks, risk aversion ahead of the upcoming U.S. elections supported its strength.
Over the past few weeks, regional currencies have faced losses, largely influenced by expectations of smaller U.S. interest rate cuts. This bolstered the dollar, which recently hit an over 2-½ month high. The Asia FX market saw continued pressure on currencies, as investors maintained a cautious sentiment toward regional markets.
The Chinese yuan was stable, with the USDCNY pair hovering around 7.1019 yuan. The PBOC's rate cut was anticipated, coinciding with aggressive stimulus measures to bolster sluggish growth. However, lower rates and increased fiscal spending put pressure on the yuan, particularly with U.S. interest rates expected to remain elevated.
Despite these challenges, expectations of further Chinese stimulus buoyed currencies linked to the country. For instance, the Australian dollar rose by 0.1%, while other regional currencies showed signs of strength after recent declines. The Asia FX market is likely to experience continued fluctuations as markets assess both U.S. and Chinese policy directions.
As the dollar index showed slight declines in Asian trade, it remained near its strongest levels since early August, driven by the ongoing strength of the U.S. economy. As we approach the presidential elections, safe-haven plays are also influencing the market, with traders eyeing a tight race between Kamala Harris and Donald Trump.
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Most Asian currencies remain muted as the yuan holds steady after China’s recent rate cut, influencing the Asia FX market
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