Most Asian currencies firmed slightly on Tuesday, while the dollar wallowed at seven-week lows after weak labor data from last week fueled increasing bets that the Federal Reserve will cut interest rates in September.
The Chinese yuan was among the better performers in the region, reaching its strongest level in 10 months after a strong midpoint fix from Beijing.
Most regional currencies were sitting on a positive start to September, while the dollar nursed losses from the prospect of rates turning sharply lower in the coming months.
Uncertainty ahead of key U.S. inflation data due this week also kept traders skittish towards the dollar, while limiting bigger gains in Asian markets.
Chinese yuan hits 10-mth high amid signs of policy support
The Chinese yuan’s USD/CNY pair fell 0.1% to 7.1242 yuan, with the yuan touching its strongest level since November 2024.
This came after the People’s Bank of China set its strongest yuan midpoint in 10 months, amid growing signs that Beijing was strengthening the yuan as a means to appease the United States.
A stronger yuan and weaker dollar make U.S. exports to China more attractive, with China potentially driving up the yuan to encourage more exports to the country. But this left the yuan sitting on strong gains through August and early-September.
Goldman Sachs analysts said that recent strength in the yuan did stem from policy, rather than market actions. They added that Beijing was likely to keep strengthening the yuan, given the currency’s role as a peg for several Asian markets.
Broader Asian currencies firmed, with lower U.S. interest rates set to drive more capital flows into the region. The Japanese yen’s USD/JPY pair fell 0.1% after logging wild swings on Monday, following Prime Minister Shigeru Ishiba’s unexpected resignation.
Ishiba’s ouster heralds heightened political uncertainty in Japan, which in turn is expected to delay any more interest rate hikes by the Bank of Japan.
The Australian dollar’s AUD/USD pair rose 0.1% to a seven-week high. A private survey showed Australian consumer sentiment deteriorated in September and remained weak amid persistent uncertainty over interest rates and slowing economic growth.
The Singapore dollar’s USD/SGD pair fell slightly, while the South Korean won’s USD/KRW pair rose 0.2%.
The Indonesian rupiah was an outlier, weakening sharply after the abrupt removal of Indonesian finance minister Sri Mulyani Indrawati. Reports said the Indonesian central bank intervened in forex markets to stem further weakness in the rupiah, whose USD/IDR pair surged over 1%.
The Indian rupee’s USD/INR pair steadied after recovering mildly from near record high levels.
Dollar hits 7-wk low on rate cut bets; inflation data awaited
The dollar index and dollar index futures both fell 0.1% on Tuesday, extending overnight losses and remaining at their weakest level since late-July.
The greenback has been on a downturn since substantially weaker than expected nonfarm payrolls data from last week, which showed the U.S. economy barely created any new jobs in August.
The reading ramped up bets on a September rate cut, especially given that several Fed officials said labor market weakness was a major consideration for cutting rates.
Fed fund futures showed traders pricing in a 90.1% chance for a 25 basis point cut during the Fed’s September 16-17 meeting. Traders were also pricing in a 9.9% chance for a 50 bps cut, CME Fedwatch showed.
But before that, U.S. consumer and producer inflation prints for August are due this week. Traders will be closely watching the readings for any signs of higher prices, given that a bulk of President Donald Trump’s tariffs took effect last month.
Source :
https://www.investing.com/news/forex-news/asia-fx-firms-with-yuan-at-10mth-high-dollar-hits-7wk-low-on-rate-cut-bets-4230432
