Dollar Strengthens as PMI Data Boosts Aussie, Asia FX Remains Muted
Asian Currencies Face Pressure as Dollar Gains Momentum
Most Asian currencies experienced a slight decline on Wednesday due to the strengthening of the US dollar, which was fueled by robust overnight data. However, the Australian dollar stood out as it rose sharply in response to a strong inflation reading. This data has increased expectations for an interest rate hike in November.
Australian Dollar Benefits from Inflation Growth
The Australian dollar jumped 0.5% as the third-quarter inflation growth surpassed expectations. Reserve Bank of Australia Governor Michele Bullock had previously warned about the possibility of inflation triggering interest rate hikes. Consequently, ANZ analysts now anticipate a 25 basis point hike in November, a month earlier than previously predicted.
Rate Hike Speculation Boosts Australian Dollar
The prospect of a rate hike has positive implications for the Australian dollar, which had recently hit a low point in 2023 due to concerns over the country’s economic growth. Additionally, optimism surrounding China’s announcement of a 1 trillion yuan bond issuance for infrastructure development has further supported the Australian dollar. This move is expected to increase commodity demand in China, particularly for metals.
Yen Weakens Amidst Deterioration and Intervention Concerns
Meanwhile, the yen weakened as deteriorating data in Japan indicated a decline in economic performance. The currency remained under pressure due to the widening gap between local and US interest rates. Additionally, concerns over intervention in currency markets by the Japanese government further contributed to the yen’s decline.
US Dollar Steadies with Strong Economic Cues
In Asian trade, the US dollar and euro experienced slight declines but maintained strong overnight gains. This was attributed to unexpected growth in the US economy during October, which signaled continued resilience. Furthermore, Federal Reserve Chairman Jerome Powell’s upcoming speech at a conference is expected to provide further insights into the future direction of US interest rates.
Fed Meeting and Economic Data Awaited
Market participants eagerly await the release of third-quarter economic data, which is expected to shed more light on the current state of the world’s largest economy. Economic strength will provide the Federal Reserve with greater flexibility in maintaining higher interest rates. However, it is widely anticipated that the central bank will keep rates unchanged in the upcoming meeting.
