Asia FX muted, dollar steadies with nonfarm payrolls on tap

Asia FX muted, dollar steadies with nonfarm payrolls on tap

The Japanese yen, however, remained steady after a hawkish Bank of Japan sparked a rally in the currency this week, putting it at its strongest levels since late-March. The currency also saw some safe haven bids as a global carry trade continued to come undone.

While global stock markets logged steep losses on concerns over slowing economic growth, losses in foreign exchange markets were limited by the prospect of U.S. interest rate cuts in the coming months. This notion also limited any strength in the dollar. 

The Japanese yen steadied after a strong rally on Friday, with the USDJPY pair hovering around 149.50 yen. The pair had fallen as low as 148.88 yen earlier in the day. 

The yen surged this week after the BOJ hiked interest rates by 15 basis points and flagged more potential hikes in 2024, citing some improving trends in the Japanese economy. 

Data on Friday showed Japan’s monetary base– the change in the total amount of yen in circulation- increased more than expected in July, heralding an uptick in inflation over the coming months. 

The BOJ said that inflation was likely to pick up on higher domestic wages- which presents a more hawkish outlook for the central bank this year. 

The dollar index and dollar index futures steadied in Asian trade after rebounding in overnight trade, as the greenback benefited from safe haven demand. 

The dollar was nursing some losses from earlier in the week after the Federal Reserve flagged the possibility of an interest rate cut in September. 

Weak economic data furthered bets on a September rate cut, as purchasing managers index data showed an outsized contraction in manufacturing activity in June.

Focus was now squarely on upcoming nonfarm payrolls data for more cues on the economy, with any more signs of a cooling labor market likely to further expectations for a rate cut. 

Broader Asian currencies moved in a tight range. The Chinese yuan’s USDCNY pair steadied after logging wild swings this week, although sentiment towards China remained negative as weak PMI data fueled increased concerns over an economic slowdown.

The Australian dollar’s AUDUSD pair rose slightly before a Reserve Bank meeting next week, with soft consumer price index data spurring bets that the central bank will keep interest rates unchanged until at least next year. 

But producer price index data for the second quarter read slightly higher.

The South Korean won’s USDKRW pair rose 0.2% despite a slightly stronger-than-expected CPI reading for July, while the Singapore dollar’s USDSGD pair was flat.

The Indian rupee’s USDINR pair moved little and remained in sight of record highs.

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