Asia FX remained subdued on Wednesday as the dollar steadied in anticipation of the Federal Reserve’s meeting minutes. Most Asian currencies, including the yen and yuan, traded within a tight range, highlighting the cautious market sentiment. The exception was the New Zealand dollar, which surged due to a hawkish stance from the Reserve Bank of New Zealand (RBNZ).
The New Zealand dollar (NZD) spiked 0.9% to a two-month high after the RBNZ signaled a delay in potential interest rate cuts due to persistent inflation. Despite keeping the official cash rate steady, the RBNZ’s focus on tight labor conditions and high service prices suggested that rate cuts might not occur until late 2025. This hawkish tone bolstered the NZD against other currencies.
The standout performance of the New Zealand dollar amidst subdued Asia FX markets was significant. The RBNZ's warning about delayed rate cuts sparked a positive market reaction, with traders now expecting rate cuts later in 2025. Despite some positive signals, the RBNZ acknowledged that inflation was easing slowly and projected that price pressures would fall within its 1% to 3% target range by the end of 2024.
In Asian trading, both the dollar index and dollar index futures stabilized after recording overnight gains. The greenback recovered some losses as Fed officials emphasized the need for more confidence before considering rate cuts. The minutes from the Fed's late-April meeting, set to be released later on Wednesday, are highly anticipated for additional guidance on the central bank's next moves. This anticipation kept most Asian currencies relatively stable, with Asia FX subdued ahead of the key release.
The USD/JPY pair showed continued weakness in the yen, rising 0.1% but remaining well above 156 yen. Disappointing trade data from Japan, including weaker-than-expected exports and imports for April and a larger-than-expected trade deficit, also weighed on the yen. Traders are now looking ahead to the release of key Japanese purchasing managers index (PMI) data for May on Thursday.
The Chinese yuan (USD/CNY) moved little and stayed near a six-month high as markets awaited further signals on Beijing's economic stimulus measures. Similarly, the Australian dollar (AUD/USD) remained flat, with PMI readings for May due on Thursday. Meanwhile, the South Korean won (USD/KRW) fell by 0.1% following data indicating a slight increase in the producer price index inflation for April. Market holidays in Singapore, Malaysia, and Thailand contributed to dull trading volumes across Southeast Asia.
Asia FX remained subdued ahead of the Fed minutes, while the New Zealand dollar surged on a hawkish RBNZ stance.
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