© Reuters
Investing.com – Most Asian currencies were muted on Wednesday as weaker-than-expected economic data from China and Australia soured sentiment towards the region, while expectations of the upcoming Federal Reserve meeting weighed as well.
It reversed early gains and traded flat after data showed that the country fell to a 13-month low in May, mainly driven by a sudden decline. The reading showed that external demand for Chinese goods remained subdued amid worsening economic conditions around the world, representing a new headwind for China as it struggles to recover from three years of COVID turmoil.
The country’s economy has been flat, amid pressures from high interest rates and inflation.
But the Australian dollar got some support from comments from Reserve Bank Governor Philip Lowe, who reiterated that domestic interest rates may need to rise further in order to curb hyperinflation. On Tuesday, the RBA took them above 4% for the first time in 12 years.
Most other Asian currencies moved slightly, given that the prospects for a weak Chinese economy bode poorly for countries with significant exposure to the Asian giant.
It was a clear outperformer today, rising 0.3% from its lowest level in nearly six months as recent losses in the currency spurred speculation that the government could once again intervene in the currency markets to support the yen.
The dovish view from the Bank of Japan greatly reduced the yen’s attractiveness in a high-yield environment, which in turn spurred continued intervention into late 2022.
Weak inflation and wage growth readings of recent months have prompted more bets that the Bank of Japan will maintain its ultra-loose policy in the near term.
Move a little earlier this week.
The greenback was steady in Asian trading after a muted overnight session, with the greenback moving less than 0.1% in either direction. While weak US economic data spurred some losses in the dollar this week, it held steady near 11-week highs as uncertainty heightened in the markets over next week’s Federal Reserve meeting.
The markets are showing that there is an 82% chance that the central bank will keep interest rates steady. But given that recent inflation and labor market data beat expectations, traders remained wary of a possible 25 basis point Fed hike.
However, even if the Fed decides to pause the rate hike cycle, the markets see little chance of a rate cut this year, as higher interest rates are set to weigh on most Asian currencies.