The dollar strengthened against a basket of currencies after the Fed minutes, coming within sight of an over two-month high as traders bet that U.S. interest rates will remain higher for longer, or even potentially rise further this year.
This notion pressured most Asian currencies, as the gap between risky and low-risk yields narrowed. The Japanese yen was among the worst hit, hovering at a nine-month low on Thursday.
Data also showed that Japan logged a surprise trade deficit in July, while the country’s exports, particularly to China, contracted for the first time since 2021.
Weak trade data also weighed on the Singapore dollar, with the currency losing 0.2% after the island state’s key non-oil exports shrank more than expected in July.
Singapore’s trade activity acts as a bellwether for broader Asia, and heralds continued weakness due to slowing demand in China.
The Australian dollar slid 0.6%, hitting a nine-month low on risks from a Chinese slowdown. Data also showed some cooling in Australia’s job market through July, which gives the Reserve Bank less impetus to keep raising interest rates.
The yuan was among the few outliers for the day, surging 0.7% from its weakest level since November 2022.
Reuters reported that China’s major state-owned banks were seen selling U.S. dollars to snap up yuan in both onshore and offshore spot markets this week, with the measures aimed chiefly at buoying the Chinese currency.
The yuan was nursing steep losses for August as a string of readings pointed to worsening conditions in the world’s second-largest economy.
Fears of a brewing debt crisis in China’s property market also weighed on the yuan, as markets feared contagion from a potential default by major real estate developer Country Garden Holdings (HK:2007).
Fitch Ratings flagged a potential reassessment of China’s sovereign rating, especially if the government stretches its debt levels to help buoy the economy. But the ratings agency sees few chances of this happening in the near-term.
The Indian rupee was also among the few outliers for the day, rising 0.3% amid reports that the Reserve Bank was selling dollars to keep the Indian currency off record lows.
The dollar index and dollar index futures rose 0.1% each in Asian trade, and were close to their strongest levels since early-June.
The minutes of the Fed’s July meeting showed on Wednesday that most members of the rate-setting committee supported more interest rate hikes to curb sticky inflation.
The minutes added to concerns over rising U.S. interest rates, especially after inflation read higher in July. The Fed had hiked rates by 25 basis points in July, and had warned that further increases were contingent on the path of inflation.
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