Asian currencies rose on Tuesday, with the Japanese yen nearing a 2024 high as the dollar retreated amid growing bets that the Federal Reserve will cut interest rates by a wide margin this week.
Regional trading volumes were subdued due to holidays in markets in China and South Korea. Anticipation of the Federal Reserve’s decision on Wednesday also kept traders on the sidelines.
Dollar falls as focus shifts to 50bp cut
Crude oil and gold prices fell about 0.1% in Asian trading, extending losses from the previous session.
The US dollar was hurt by growing expectations that the Federal Reserve will cut interest rates by 50 basis points at the end of its meeting on Wednesday. The central bank is also expected to begin an easing cycle that could see interest rates fall by 100 basis points by the end of the year.
The data showed that traders are pricing in a 68% chance of a 50 basis point rate cut, and a 32% chance of a 25 basis point rate cut.
Lower interest rates make the dollar less attractive, prompting traders to seek higher yields in riskier markets such as Asia. Such a scenario usually bodes well for regional currencies.
But the market remains weak on concerns about slowing economic growth in China.
However, most Asian currencies posted some gains on Tuesday. The Australian dollar rose slightly, while the Singapore dollar remained flat.
The offshore Chinese yuan pair fell slightly, with local markets closed for the second straight session. But a batch of weak economic readings from the country, released over the weekend, set the yuan up for further weakness.
The Indian Rupee pair fell further below the Rs 84 level, after hitting a series of record highs in August.
Japanese Yen Strong, Bank of Japan Decision Awaited
The Japanese yen pair stabilized on Tuesday, remaining close to its lowest levels this year.
The yen rose on the prospect of a U.S. interest rate cut, while traders were also seen building long positions in the yen ahead of Friday’s monetary policy meeting.
Analysts do not expect the Bank of Japan to raise interest rates. But policymakers are expected to take a hawkish stance and expect interest rates to rise in the face of rising inflation.
Japanese data for August is also due on Friday, and is expected to show an increase.
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