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Asia FX treads water between mixed China PMIs and Fed pause bets

Published 08/30/2023, 11:53 PM
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Investing.com-- Most Asian currencies moved little on Thursday as markets weighed weak economic data from China against growing bets that the Federal Reserve will pause its rate hike cycle.

The dollar steadied in Asian trade after steep losses this week, as weaker-than-expected GDP and employment data spurred bets that the Fed has limited headroom to keep raising interest rates. 

But optimism over such a scenario was largely dulled by signs of continued weakness in China, as data released on Thursday pointed to a sustained decline in manufacturing activity. Concerns over a property market meltdown also grew as Country Garden Holdings (HK:2007), China’s biggest property developer, logged a steep interim loss and warned of a potential default. 

Chinese yuan flat after mixed PMIs, rate cuts in focus 

The yuan fell 0.1% on Thursday, with further losses in the currency limited by a substantially stronger-than-expected daily midpoint fix from the People’s Bank of China (PBOC).

Strong fixing and currency market intervention has helped the yuan weather growing headwinds from an economic slowdown, although the currency was still trading close to 10-month lows.

Data on Thursday showed that China’s manufacturing sector contracted for a fifth straight month in August, albeit at a smaller-than-expected pace, while non-manufacturing activity missed expectations.

The readings presented little improvement in Asia’s largest economy, as it grapples with slowing demand and a potential real estate crisis. 

“A further slowdown in the service sector recovery coupled with a slight moderation in manufacturing contraction does not amount to any meaningful improvement to the overall economic backdrop,” analysts at ING wrote in a note.

Markets are now awaiting more monetary stimulus measures from the PBOC, with media reports suggesting that the bank planned to cut mortgage and yuan deposit rates in the near future. Any more rate cuts bode poorly for the yuan.

Concerns over China weighed on most other Asian currencies. The Taiwan dollar sank 0.2%, while the Singapore dollar lost 0.1%. The South Korean won was flat even as data showed industrial production and retail sales fell more than expected in July.

The Australian dollar was among the few outliers, rising 0.2% as data showed that private investment in the country grew much more than expected in the second quarter.

The Japanese yen was also buoyed by stronger-than-expected retail sales data for July, although industrial production shrank more than expected.

The Indian rupee rose 0.2% ahead of key June-quarter GDP data due later in the day, which is expected to show that the Indian economy grew a whopping 7.7% in the past quarter. 

Dollar steadies after Fed pause bets spur steep losses, more data awaited 

The dollar index and dollar index futures both moved little in Asian trade, after tumbling 0.9% so far this week.

Weaker-than-expected economic readings pushed up hopes that the Fed will have little headroom to keep raising interest rates.

Focus is now squarely on personal consumption expenditures and nonfarm payrolls data, due in the coming days, for more cues on the U.S. economy and monetary policy.

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