Asia’s Foreign Exchange Market Remains Calm, Dollar Holds Firm as Prospects of June Rate Cut Diminish
Across Asian markets on Monday, the movement of most currencies remained constrained, reflecting a quiet trading session. Meanwhile, the dollar maintained stability following a robust nonfarm payrolls report, which significantly tempered expectations of an interest rate cut by the Federal Reserve in June.
Investors keenly await additional signals regarding U.S. interest rates, particularly from inflation data and further commentary from the Federal Reserve. These factors continued to influence sentiment in Asian markets, contributing to an atmosphere of cautiousness among traders.
The dollar exhibited resilience in Asian trading, with both the dollar index and dollar index futures registering modest gains. These increases were bolstered by the release of a nonfarm payrolls report for March, which surpassed expectations, signaling a robust U.S. labor market. Consequently, markets swiftly revised down the probability of a June interest rate cut by the Federal Reserve.
Currently, traders anticipate only a 51% likelihood of a 25 basis point rate cut in June, a notable decline from the 55% probability observed last week. Conversely, the probability of the Fed maintaining interest rates rose to 46.8%, up from 39.6% in the previous week, according to data from the CME Fedwatch tool.
Market participants are eagerly awaiting further insights on inflation, with the release of consumer price index data for March scheduled for Wednesday. Additionally, the release of minutes from the Federal Reserve’s March meeting on the same day is anticipated to offer additional clarity, particularly following recent remarks from several Fed officials suggesting a reluctance to implement rate cuts.
The prospect of sustained higher interest rates in the U.S. continues to exert pressure on Asian currencies, contributing to a subdued trading environment across the region on Monday.
USD/JPY Pair Stabilizes as Attention Shifts to Intervention Thresholds
The Japanese yen exhibited minimal movement on Monday, with the USD/JPY pair hovering near the 152 level. Despite retreating from its recent 34-year high above 152 last week, the pair showed signs of retracement towards those levels. However, there is caution regarding potential intervention by Japanese authorities if the pair surpasses the 152 threshold, following numerous verbal warnings from Japanese officials in recent weeks.
Japanese wage growth data for February met expectations, but there are anticipations of an uptick in wages in the coming months, which could signal a more hawkish stance from the Bank of Japan.
Elsewhere in Asia, the Chinese yuan experienced limited movement, with the USD/CNY pair remaining close to five-month highs. Although there has been renewed selling pressure on the currency in recent sessions, measures implemented by the People’s Bank of China have curbed further gains in the USD/CNY pair.
The Australian dollar, represented by the AUD/USD pair, saw slight gains, while the Indian rupee, as reflected by the USD/INR pair, maintained levels above 83.
The South Korean won weakened marginally, with the USD/KRW pair edging up by 0.1%, while the Singapore dollar remained stable against the US dollar, as indicated by the USD/SGD pair.
