Most Asian currencies rose on Friday as continued bets on a U.S. interest rate cut put the dollar on track for a fourth straight week in the red, while the Japanese yen fell further amid improved risk sentiment.
While the dollar rose from its lowest in nearly seven months on Thursday, it is still on track for weekly losses amid growing conviction that the Federal Reserve will cut interest rates in September.
This concept has spurred some flows into Asian markets, although uncertainty over China and expectations of a smaller rate cut by the Federal Reserve are still keeping gains in local currencies limited.
Japanese yen falls as safe-haven demand fades
The Japanese yen rose slightly on Friday but was among the worst performing Asian currencies this week, as improved risk appetite reduced demand for the safe-haven currency.
The yen fell 0.2% on Friday but is up 1.6% this week, with the pair approaching the 150-yen level. It had fallen to 141 yen last week amid a slide in risk-driven global markets.
However, the outlook for the yen looked strong, especially after GDP data this week showed that the Japanese economy is starting to recover thanks to rising wages. The strength of the economy is expected to give the Bank of Japan more room to raise interest rates further.
Dollar heads for weekly losses as recession fears ease
Gold and currency prices fell slightly in Asian trading, and are set to lose about 0.2% this week – the fourth straight week of losses.
Stronger-than-expected July data provided some strength to the dollar on Thursday, while also easing recession fears.
But weak inflation data earlier this week has spurred increased bets that the Fed will cut interest rates in September, albeit by 25 basis points instead of the previous forecast of a 50 basis point cut, according to .
However, the prospect of interest rate cuts kept the dollar under pressure, while improved risk appetite also spurred flows into higher-yielding currencies.
Among other Asian currencies, the Chinese yuan fell 0.2% but is expected to rise slightly over the week. A series of mixed economic readings on China did little to improve sentiment towards the yuan, as did Beijing’s assurances of more stimulus measures.
Focus now turns to the People’s Bank of China’s decision on its benchmark interest rate next week, after the bank unexpectedly cut rates in July.
The Australian dollar rose 0.2%, while the New Zealand dollar rose 0.5% even as Reserve Bank of New Zealand Governor Adrian Orr signaled interest rate cuts of at least 50 basis points this year.
The South Korean won fell 0.4%, while the Singapore dollar fell 0.1%.
The Indian Rupee pair fell slightly but remained near its record high of over Rs 84.