Asia FX muted as Dec rate cut bets wane; dollar weakens on economic uncertainty
Investing.com-- Most Asian currencies moved in a flat-to-low range on Friday as traders sharply priced out expectations that the Federal Reserve will cut interest rates in December.
But the dollar took little support from this trade, amid growing uncertainty over the economic impact of the longest ever U.S. government shutdown, which ended on Wednesday.
Weak economic data from China weighed on sentiment, as Asia’s largest economy began the fourth quarter of the year on a largely dour note. The yuan was flat.
The South Korean won was a standout performer, recovering sharply from its weakest level in nearly 16 years as the government outlined plans to support the rapidly weakening currency.
Markets this week rapidly priced out expectations for a December rate cut by the Federal Reserve, amid growing uncertainty over the economic impact of a prolonged government shutdown.
This uncertainty came to a head on Thursday after White House officials signaled they may not release inflation and employment figures for October due to the shutdown. This is likely to leave the Fed flying blind into its December meeting, increasing the odds of the central bank leaving rates unchanged due to uncertainty over the economy.
The dollar retreated on Thursday, and traded mildly lower on Friday. The dollar index and dollar index futures hovered around the low-99 point level, and were down about 0.4% this week.
The South Korean won’s USD/KRW pair fell 0.8% on Friday amid reports that the government planned to defend the flailing currency.
Bloomberg reported that Seoul was discussing measures with major market players, including the pension fund and the Bank of Korea, to take action and defend the won.
This comes as capital outflows, especially from the equity market, along with growing uncertainty over the east Asian economy, drove steep losses in the won this week. The USDKRW pair came close to its highest level in 16 years on Thursday.
The Chinese yuan’s USD/CNY pair hovered around 7.0949 yuan, showing limited reaction to mostly weak economic readings for October.
Industrial production grew less than expected in the month, while fixed asset investment shrank far more than expected, with the latter signaling growing reluctance towards capital spending among Chinese businesses.
Retail sales were a sole bright spot, rising slightly above expectations, although growth still slowed from the prior month.
The readings highlighted continued weakness in the Chinese economy, as it grapples with high U.S. trade tariffs and rampant disinflation. Beijing has pledged to dole out more stimulus to support growth in the coming quarters.
Among broader Asian currencies, the Japanese yen’s USD/JPY pair fell slightly after tumbling from the 155 yen level on Thursday. Traders were closely watching the 155 yen level, given that it had currency market drawn intervention from the government in the past.
The Australian dollar remained an outlier, with the AUD/USD pair rising 0.2%. The currency extended gains from earlier this week after a strong labor market reading dampened expectations for more interest rate cuts by the Reserve Bank of Australia.
The Singapore dollar’s USD/SGD pair fell slightly, while the Indian rupee’s USD/INR pair fell 0.1%, amid reports of some currency market intervention by the Reserve Bank of India.
The Taiwan dollar’s USD/TWD pair was flat.
