Asian currencies firm on Tuesday as the dollar continued to retreat from recent one-year highs, driven by ongoing expectations of a Federal Reserve interest rate cut in December.
Markets in the region are also anticipating economic updates from China and Japan this week, along with various purchasing managers index reports from major economies.
Last week, most Asian currencies experienced significant losses due to strong U.S. inflation data and less dovish commentary from the Federal Reserve (Fed), raising uncertainty about the extent of future interest rate reductions.
The U.S. dollar weakened on Tuesday, retreating from its one-year peak. Traders are increasingly betting on a Federal Reserve rate cut in December. Current CME FedWatch data indicates a 59.8% probability of a 25 basis point cut. Meanwhile, a 40.2% chance suggests rates will remain unchanged. This speculation has brought slight relief to Asian markets despite lingering uncertainties.
The Chinese yuan remained steady, with the USDCNY pair hovering near three-month highs. The People’s Bank of China is expected to maintain its loan prime rate during Wednesday’s decision. October saw a slight cut to the rate, aimed at boosting local economic growth. However, recent Chinese stimulus measures have underwhelmed, and economic data showed minimal improvements.
The Japanese yen firmed marginally on Tuesday, with the USDJPY pair declining by 0.4%. However, it still nears four-month lows reached earlier this month. Japanese consumer inflation data, due Friday, could reveal the Bank of Japan's next steps. Previous GDP figures raised concerns about the BoJ's ability to adjust rates further.
Other Asian currencies remained firm. The Australian dollar (AUDUSD) rose 0.2% after the Reserve Bank of Australia reiterated its stance on unchanged interest rates. The Singapore dollar (USDSGD), South Korean won (USDKRW), and Indian rupee (USDINR) all traded flat. The rupee remains near its record highs above 84.6 rupees.
Asian markets are navigating a mix of local and global economic cues. The dollar's retreat has temporarily eased pressure, but longer-term trends remain uncertain.
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