Asia FX nurses losses as Trump victory puts dollar at 4-mth peak; Fed awaited

Investing.com– Most Asian currencies steadied from recent losses on Thursday, while the dollar hovered around four-month highs after a Donald Trump victory in the presidential election.

Focus was now on the conclusion of a Federal Reserve meeting later in the day, where the central bank is widely expected to cut interest rates. But its outlook on future rate cuts will be closely watched.

Asian currencies were nursing steep losses from the prior session after news of Trump’s victory sparked sharp increases in the dollar and Treasury yields. But they steadied from these losses on Thursday, with speculation over government intervention in Japan and China also helping their respective currencies. 

Chinese yuan firms amid intervention watch; NPC meeting in focus 

The Chinese yuan firmed slightly on Thursday, with the USDCNY pair falling 0.1% after racing to a three-month high earlier. The People’s Bank also set a substantially weaker yuan midpoint for the day.

The yuan was battered by the prospect of a Trump presidency, given that he has vowed to impose steep trade tariffs against the country. 

The prospect of a renewed trade war bodes poorly for the Chinese economy, with reports suggesting that Chinese state banks were selling dollars to help stem further weakness in the yuan. 

But Beijing is also expected to roll out more fiscal stimulus to brace against any tariffs. The National Peoples’ Congress kicked off a four-day meeting earlier this week, and is expected to outline plans to increase fiscal spending and support growth.

Local media reports said Prime Minister Xi Jinping had congratulated Trump on his victory, and had called for improved cooperation between China and the U.S.

Separately, data showed China’s trade surplus grew much more than expected in October, buoyed by robust exports. 

Dollar steadies at 4-mth peak after Trump victory

The dollar index and dollar index futures both fell slightly in Asian trade, steadying just below their highest levels in four months. 

The greenback surged after Trump’s victory on Wednesday. The president-elect is expected to introduce more inflationary policies, given his protectionist stances on trade and immigration. 

Such a scenario is likely to keep interest rates underpinned in the longer term, benefiting the dollar. 

Focus on Thursday is also on the conclusion of a Fed meeting, with the central bank expected to cut interest rates by 25 basis points.

But focus will be largely on the Fed’s outlook for rates, especially in the face of a Trump presidency, and recent stickiness in inflation. 

Broader Asian currencies were mostly muted on Thursday with traders remaining cautious before the Fed. Regional units were also nursing steep losses from the prior session, after the dollar rallied.

The Japanese yen’s USDJPY pair fell 0.2% after hitting a three-month high in the prior session. Sharp (OTC:SHCAY) weakness in the yen sparked warnings from Japanese ministers over potential intervention.

The Australian dollar’s AUDUSD pair surged 0.8%, rebounding from losses in the prior session. Data showed the country’s trade balance shrank more than expected in September amid softening commodity exports.

The South Korean won’s USDKRW pair fell 0.2%, while the Indian rupee’s USDINR pair hovered above 84 rupees after surging to a record high in the prior session.