Asian Currencies Strengthen as Dollar Retreats Ahead of Nonfarm Payrolls
Asian Currencies Gain Ground
Most Asian currencies made gains on Friday, while the dollar continued to weaken as traders speculated that the Federal Reserve’s interest rate hikes were coming to an end. However, anticipation of nonfarm payrolls data limited the extent of the currency gains.
Trading volumes in the region were relatively subdued due to a Japanese market holiday.
Rate-Sensitive Currencies Outperform
Rate-sensitive currencies, including the , and the , performed well on the day, rallying between 0.5% and 1%.
The Japanese yen rose 0.1% in thin holiday trading, but remained close to its weakest level in a year against the dollar. This prompted caution among traders regarding potential intervention by the Japanese government in the currency markets, following the Bank of Japan’s less hawkish stance earlier in the week.
The Australian dollar remained flat, hovering around a one-year low amid a series of disappointing economic indicators. A private survey showed that Chinese grew less than expected in October, although it did show a slight improvement from the previous month.
Dollar Weakens on Rate Hike Speculation
Broader Asian currencies advanced, while the dollar experienced some losses for the week after the Federal Reserve signaled a more dovish approach to future interest rate hikes.
This led to increased speculation that the central bank would not raise rates further this year and might even cut rates from mid-2024. As a result, the and weakened slightly in Asian trade and were down 0.4% for the week.
However, the dollar faced a significant test with the release of key nonfarm payrolls data for October later in the day.
Labor Market Data in Focus
Any signs of strength in the labor market would provide the Federal Reserve with more reason to raise interest rates, potentially reversing some of the dollar’s weakness seen this week. The central bank has left the door open for one more rate hike this year, depending on economic data.
While Friday’s data is expected to show a sharp decline in payrolls, it is worth noting that the data consistently outperformed market estimates in 2023, reflecting the ongoing strength of the U.S. labor market.
Australian Dollar Set for Strong Week Ahead of RBA Meeting
The Australian dollar fell 0.1%, but remained up 1.5% for the week as expectations grew for an interest rate hike by the Reserve Bank of Australia (RBA) at its upcoming meeting.
This sentiment was reinforced by stronger-than-expected third-quarter data, indicating that robust retail spending could contribute to inflation in the coming months.
Recent signs of resilient Australian inflation, along with a strong labor market and retail spending, are expected to prompt the RBA to raise interest rates by at least 25 basis points next week.
The RBA had previously raised rates by a cumulative 400 basis points over the past year but had maintained a hold since May to assess the impact of the previous rate hikes on the Australian economy.
