Asia FX weak as Fed jitters grow, yen stalls after suspected intervention

Asia FX weak as Fed jitters grow, yen stalls after suspected intervention

Most regional currencies were nursing losses through April as traders steadily priced out expectations of early interest rate cuts by the Fed. A series of hotter-than-expected U.S. inflation readings drove this notion. 

The dollar index and dollar index futures both rose about 0.3% in Asian trade, as investors positioned for the Fed meeting. The central bank is expected to keep rates steady, but could potentially offer hawkish signals in the wake of sticky inflation readings. 

Fears of higher-for-longer U.S. rates put the dollar on course for a 1.3% gain in April. 

The USDJPY pair, which gauges the amount of yen required to buy one dollar, rose 0.3% to about 156.80 on Tuesday.

The pair had fallen sharply from 34-year highs above 160 on Monday, sparking speculation that the Japanese government had intervened to buoy the yen. Traders said it appeared that the new line in the sand for the Japanese government was USDJPY at 160. 

While the government gave no official word on the intervention, the yen rebound came after a series of verbal warnings from Japanese officials over the past month.

Mixed Japanese data factored into the yen’s weakness on Tuesday. While industrial production rose more than expected in March, retail sales missed expectations by a wide margin, presenting a muted outlook for consumer spending and inflation. 

The yen was the worst performer in Asia through April, with the USDJPY pair up nearly 4%. 

The Australian dollar was the worst performer in Asian trade on Tuesday, with the AUDUSD pair sinking 0.5% after substantially weaker than expected retail sales data.

The reading showed that sticky inflation and high interest rates weighed heavily on consumer spending, which presented a softer outlook for inflation. Traders were seen slashing expectations that the Reserve Bank of Australia will hike interest rates further this year. 

The Aussie was set for a muted performance in April.  

The Chinese yuan’s USDCNY pair rose 0.2% on Tuesday after mixed purchasing managers index data pointed to some slowing in the Chinese economy. 

Official manufacturing PMI data showed activity slowing slightly less than expected, while non-manufacturing activity grew substantially less that expected. 

While a private PMI reading painted a rosier picture of manufacturing activity, the overall readings still showed limited strength in Chinese business activity. 

The USDCNY pair was up 0.3% in April, with further gains constrained by persistent efforts from the People’s Bank.

Other Asian currencies weakened on Tuesday. The South Korean won’s USDKRW pair rose 0.3%, while the Singapore dollar’s USDSGD pair added 0.1%. 

The Indian rupee’s USDINR pair edged closer towards record highs hit earlier in the month, as caution over the 2024 general elections gave the rupee little relief.

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