Asian Currencies Gain as Dollar Retreats and China Struggles with Deflation
Asian Currencies Advance Slightly Amid Dollar and Treasury Yield Pullbacks
Most Asian currencies made modest gains on Thursday as the dollar and Treasury yields pulled away from recent peaks, offering a glimmer of hope despite ongoing deflationary concerns in China.
Investors are eagerly awaiting further cues on U.S. interest rates after tempering expectations for early rate cuts by the Federal Reserve. This adjustment follows a series of strong economic reports and hawkish statements from Fed officials.
The dollar’s rally was curbed, and it retreated from a three-month high earlier this week. U.S. Treasury yields also eased from recent highs.
Asian Markets Focus on U.S. Interest Rates Amid Dollar Pullback
The and dropped 0.1% each in Asian trade, extending sharp declines from the previous day. Januar’ys inflation data, scheduled for release next week, is poised to provide further direction on the interest rate trajectory.
Most Asian currencies inched higher, with the emerging as one of the top performers for the day, rising 0.1% and extending gains from earlier this week following the warning about potential interest rate hikes in response to persistent inflation.
The strengthened by 0.1%, moving away from near record-low levels as traders anticipated the RBI meeting later in the day. The RBI is expected to maintain rates while closely monitoring inflation and economic growth forecasts.
The declined by 0.1% and remained near a two-month low due to lingering uncertainty about the initiation of scaling back the Bank of Japan’s ultra-loose policy.
The and experienced minimal movement, while the slid 0.5% after a Bank of Thailand official expressed readiness to reduce interest rates if private consumption in the country slowed further.
Despite modest gains in Asian units, concerns about sustained higher U.S. interest rates persisted, especially after a series of statements from Fed officials signaling no imminent monetary easing.
China Continues to Grapple with Economic Weakness and Deflation
Signs of persistent economic weakness in China have dampened sentiment toward the region, with the country grappling with disinflation, as reflected in the weak Chinese inflation data.
The remained steady on Thursday, receiving support from the People’s Bank of China, which intervened in currency markets earlier this month. However, the weakened beyond the 7.2 level against the dollar, remaining close to a 2-1/2 month low.
Official data revealed that grew less than anticipated in January, while contracted for the sixteenth consecutive month. The also recorded its most significant monthly decline since late-2009, indicative of subdued discretionary spending amid worsening economic conditions.
Analysts at ING suggested that January’s inflation data marked the nadir of the current deflation cycle and projected an upturn in inflation in the coming months. Demand is also expected to receive a boost in February during the upcoming Lunar New Year holiday, during which Chinese markets will be closed for a week starting this Friday.
