Most Asian currencies remained largely unchanged on Tuesday as China’s economic objectives for 2024 failed to ignite market activity, while the dollar stabilized ahead of upcoming signals on interest rates later in the week.
Anticipation of further cues on U.S. rates kept most regional currencies trading within narrow ranges, particularly as remarks from Federal Reserve officials continued to temper expectations for imminent rate cuts.
Chinese Yuan Remains Muted as National People’s Congress Underwhelms
The Chinese yuan saw little movement on Tuesday, with a robust midpoint fix from the People’s Bank of China limiting losses in the currency.
Sentiment towards China showed minimal improvement after Beijing set a 5% GDP target for 2024, mirroring that of 2023. However, with a lower fiscal deficit target for the year, investors expressed doubts about the attainability of the target, given the absence of a lower base for comparison from the COVID-19 pandemic.
While the Chinese government pledged additional stimulus measures to bolster growth, the lack of clarity on these proposals failed to buoy market sentiment. Additionally, a private survey indicating a slowdown in China’s services sector growth in February contributed to ongoing economic challenges for the country.
Broader Asian currencies reacted negatively to the developments in China, given its economic significance in the region.
Australian Dollar Weakens Despite Improved Current Account Data
The Australian dollar, heavily exposed to China in trade, declined by 0.1% despite positive current account data for the fourth quarter. This improvement hinted at potential growth in fourth-quarter GDP figures scheduled for release on Wednesday.
The Singapore dollar and South Korean won also retreated, while the Indian rupee maintained stability.
Japanese Yen Hovers Near Four-Month Low amid Inflation Data
The Japanese yen remained close to a four-month low, despite data showing expected inflation rebound in Tokyo during February. Persistent inflationary pressures provide the Bank of Japan with further incentive to raise interest rates from historically low levels.
Dollar Steadies ahead of Powell’s Testimony and Payrolls Data
The dollar index and dollar index futures stabilized in Asian trade on Tuesday after recent volatility. Although recent data indicated some resilience in U.S. inflation, traders remained largely positioned for potential rate cuts by the Fed in June.
Market focus shifted towards a two-day testimony by Fed Chair Jerome Powell, expected to maintain a hawkish stance. Subsequently, attention will turn to Friday’s release of key nonfarm payrolls data, providing further insights into the labor market.