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Asia FX falls, dollar strong as Fed rate decision looms

Published 11/01/2023, 12:00 AM
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Investing.com-- Most Asian currencies retreated on Wednesday, while the dollar sat on strong gains as markets hunkered down before the conclusion of a Federal Reserve meeting later in the day. 

Weak purchasing managers index (PMI) data from China also kept sentiment towards regional markets frail, as the region’s biggest economy and trading hub saw sustained economic weakness through October. 

The Chinese yuan was flat, taking some support from a stronger midpoint fix from the People’s Bank of China. But sentiment towards the currency remained largely negative, as a private PMI survey showed that China’s manufacturing sector contracted in October.

The reading followed a government survey on Tuesday which showed a similar decline, and saw markets grow even more doubtful over a Chinese economic rebound this year.  

Other China-exposed currencies moved in a flat-to-low range. The Australian dollar fell slightly, while the South Korean won shed 0.3% as data showed disappointing exports and imports for October. 

The Indian rupee rose 0.1%, taking some relief from a recent slide in oil prices.

Japanese yen on intervention watch after BOJ-driven selloff 

The Japanese yen rose 0.3% on Wednesday, recovering slightly from a one-year low as the country’s top financial officials warned investors over speculating against the yen. 

The yen slumped 1.7% to 151.77 against the dollar on Tuesday after the Bank of Japan largely disappointed investors with minimal changes to its ultra-dovish policy. 

The drop brewed increased speculation that Japanese authorities will intervene in currency markets, given that the yen was close to a threshold that had triggered over $60 billion worth of intervention by the government in late-2022. 

The currency also saw increased pressure from uncertainty over the Fed meeting this week, given that a widening gap between U.S. and Japanese yields was a key source of pain for the yen over the past year. 

Dollar strong with Fed meeting, Treasury auctions in focus 

The dollar index and dollar index futures rose slightly in Asian trade after a strong overnight rally against a weaker yen.

Markets were focused squarely on the conclusion of a Fed meeting later in the day. While the central bank is expected to hold rates, it is also set to reiterate its higher-for-longer stance- a scenario that bodes well for the dollar but poorly for Asian markets. 

But before the Fed, focus will be on an announcement from the U.S. Treasury on its plans to refund government debt, especially amid a prolonged rout in bonds over the past month. 

The refunding announcement is expected to provide cues on the sizes and mixes of the planned government Treasury auctions, and will also offer insight into how the government plans to replenish its massive debt load in the face of a severe bond sell-off.  

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