The dollar rebounded from a three-week low on Thursday after data showed that personal spending grew much more than expected in July, pointing to continued upside for U.S. inflation.
But the greenback was still set to snap a six-week gaining streak, as a batch of weak economic readings fueled bets that the Federal Reserve will keep rates on hold in September.
Overnight strength in the dollar weighed on most Asian currencies, while traders also shied away from risk-driven assets before the nonfarm payrolls reading. Any signs of strength in the labor market gives the Fed more impetus and headroom to keep raising interest rates, which bodes poorly for Asian markets.
The dollar index and dollar index futures both traded sideways in Asian trade, and were set to lose about 0.4% each this week.
Most Asian currencies moved in a flat-to-low range. The Japanese yen was muted after data showed local manufacturing activity shrank further in August.
The Australian dollar sank 0.3% ahead of a Reserve Bank of Australia meeting next week, where the central bank is widely expected to keep rates on hold amid easing inflation.
The South Korean won was among the few outliers for the day, rising 0.4% after data showed the country’s imports and exports shrank less than expected in August.
The Indian rupee rose 0.1% after data on Thursday showed the Indian economy grew a bigger-than-expected 7.8% in the June quarter. But analysts expect this trend to slow in the coming quarters after inflation saw a resurgence in July.
The yuan fell 0.1% in volatile trade on Friday. The currency had opened as much as 0.6% higher after the People’s Bank of China cut the ratio of foreign exchange reserves required to be held by local banks.
The move was intended to free up more dollar reserves in Chinese markets, supporting the yuan against increasing economic headwinds. But it also signaled to markets that the PBOC was willing to absorb more yuan liquidity, which could keep traders selling the Chinese currency. This saw the yuan reverse all early gains and trade lower by 00:20 ET (04:20 GMT).
A private survey showed on Friday that China’s manufacturing sector unexpectedly grew in August, helped by a recovery in local demand. But the broader outlook for the Chinese economy, and in turn the yuan, still remains dour as a post-COVID economic recovery slows.
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