Asia FX weakens as dollar surges to 26-mth peak on rising rate jitters
Investing.com– Most Asian currencies weakened on Monday, seeing sustained pressure from strength in the dollar as stronger-than-expected U.S. payrolls data fueled increased expectations that interest rates will fall at a slower pace in 2025.
Regional trading volumes were somewhat muted on account of a Japanese market holiday, although the yen also remained largely fragile along with its regional peers.
Positive Chinese trade data did little to improve regional sentiment, with the yuan remaining fragile despite efforts from the People’s Bank to support the currency.
Dollar at 24-mth high on strong payrolls data
The dollar index and dollar index futures drifted higher in Asian trade after hitting their strongest levels since November 2022 on Friday.
The greenback was boosted chiefly by stronger-than-expected nonfarm payrolls data for December, which showed the U.S. labor market remained strong.
The reading tied into heightened concerns that a strong labor market and sticky inflation will give the Federal Reserve even more impetus to cut interest rates slowly this year.
To that end, consumer price index inflation data is due this Wednesday and will be closely watched for more cues on interest rates.
A string of Fed officials are also set to speak this week, after the minutes of the Fed’s December meeting showed growing concerns over high inflation and labor market strength among policymakers.
Goldman Sachs analysts said that they now expected only two interest rate cuts in 2025, compared to prior expectations of three cuts. The Fed’s terminal rate is also expected to be higher than initially expected.
Chinese yuan weak despite positive trade data, PBOC support
The Chinese yuan weakened on Monday, with the USDCNY pair rising 0.3%.
Weakness in the yuan came even as data showed China’s trade balance grew more than expected in December, aided by outsized exports.
But the reading was largely tied to exporters front-loading their shipments ahead of U.S. President-elect Donald Trump imposing steep trade tariffs on the country.
Trump- who will take office on January 20- has vowed to impose tariffs on China from “day one” of his presidency.
Recent measures from the PBOC did little to support the yuan. The central bank paused its bond buying liquidity programs, and also set a series of strong midpoint fixes.
Focus is now on more stimulus measures from Beijing, especially in response to Trump’s tariffs.
Broader Asian currencies moved in a flat-to-low range, remaining pressured by the prospect of higher for longer U.S. interest rates.
The Japanese yen’s USDJPY pair fell 0.1%, remaining quashed by uncertainty over a Bank of Japan meeting later this month.
The Australian dollar’s AUDUSD pair rose 0.1% after slumping to a near five-year low last week. The South Korean won’s USDKRW pair fell slightly, while the Singapore dollar’s USDSGD pair rose 0.1%.
The Indian rupee’s USDINR pair steadied after hitting fresh record highs above 86 rupees.