Regional currencies were nursing losses over the past few weeks as expectations of smaller U.S. interest rate cuts buoyed the dollar, as did signs of resilience in the U.S. economy.
The greenback hit an over 2-½ month high, with risk aversion before the U.S. elections also supporting the currency.
Middling signals on Chinese stimulus also weighed on sentiment towards regional markets, while doubts over the Bank of Japan’s capacity to raise interest rates further kept the yen close to recent lows.
The yuan’s USDCNY pair hovered around 7.1019 yuan on Monday, following a strong midpoint fix from the People’s Bank.
The PBOC cut its benchmark loan prime rate by slightly more than expected, with Monday’s cut coming amid a flurry of recent stimulus measures from Beijing.
China announced its most aggressive round of stimulus measures yet over the past month, outlining both monetary and fiscal measures to shore up sluggish growth. This also made Monday’s rate cut largely expected by markets.
But lower rates and more fiscal spending herald increased pressure on the yuan, especially with U.S. interest rates likely to remain higher than initially expected.
Still, the prospect of more Chinese stimulus buoyed currencies with exposure to the country. The Australian dollar’s AUDUSD pair rose 0.1%, while the Taiwan dollar’s USDTWD pair fell 0.4%.
Other Asian currencies also saw some strength after recent losses. The Japanese yen’s USDJPY pair fell 0.3%, but remained close to 150 yen, while the South Korean won’s USDKRW pair was flat.
The Singapore dollar’s USDSGD pair fell slightly, while the Indian rupee’s USDINR pair remained above 84 rupees.
The dollar index and dollar index futures both fell slightly in Asian trade, but remained close to their strongest levels since early-August.
The greenback was boosted by increasing conviction that U.S. interest rates will fall at a slower pace than initially expected, especially as recent data showed the U.S. economy remained strong. CME Fedwatch showed traders squarely positioned for a 25 basis point rate cut by the Federal Reserve in November.
The greenback also saw safe haven plays with less than three weeks left until the 2024 presidential elections. Recent polls pointed to a tight race between Kamala Harris and Donald Trump.
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