Most Asian currencies moved in a flat-to-low range on Thursday as a pullback in equity markets kept traders largely avoiding risk-based assets, while the dollar retreated ahead of key economic indicators in the coming days.
The Japanese yen remained an exception, rising to its strongest level against the dollar in more than two months as a decline in the carry trade, increased demand for safe havens and expectations of a rate hike by the Bank of Japan boosted the currency.
Concerns about China also contributed to caution in Asia, where surprise interest rate cuts by the People’s Bank of China did little to improve sentiment. The yuan remained near its weakest in eight months, while China-exposed currencies such as the Australian and New Zealand dollars saw extended selling.
Yen rises as carry trade eases, BOJ moves closer
The Japanese yen continued to outperform its regional peers, with the pair falling 1% to 152.38 yen – its lowest level since early May.
The yen’s initial gains were due to Japanese government intervention in the currency market earlier in July. But that intervention led to a reduction in short-term positions in the yen, which fueled an extended rally in the currency, well beyond the obvious government intervention.
The yen’s strength also came ahead of next week, when policymakers are expected to consider a 10 basis point interest rate hike amid some signs of resilience in the Japanese economy.
Dollar falls as GDP, PCE data eyed
The dollar and the euro were slightly lower in Asian trading, extending overnight declines amid growing confidence that the Federal Reserve will cut interest rates in September.
Second-quarter data, due later Thursday, along with data due Friday, are expected to provide further clues on any potential rate cuts by the Federal Reserve.
The U.S. central bank is widely expected to keep interest rates steady and signal a cut in September, and dovish rhetoric from Fed officials in recent weeks has reinforced that view.
But broader Asian currencies received little relief from the weaker dollar or the prospect of interest rate cuts, as risk appetite remained largely subdued.
The Chinese yuan hovered near an eight-month high amid ongoing concerns over the country’s slowing economic recovery. Surprise interest rate cuts by the People’s Bank of China added to pressure on the currency and did little to lift sentiment about the Chinese economy.
Concerns over China sent the Australian dollar down 0.4% to a near three-month low, while the New Zealand dollar lost 0.2%.
The South Korean won rose 0.4%, with sentiment towards the country also weighed down by weaker-than-expected second-quarter GDP data.
The Singapore dollar pair was little moved amid some safe-haven trading, while the Indian rupee pair settled just below its record high of over 83.8 rupees.
