Asian currencies maintained narrow trading ranges on Monday, while the dollar stabilized following a robust nonfarm payrolls report that led traders to significantly reduce bets on a Federal Reserve interest rate cut in June.
The anticipation of further insights into U.S. interest rates, particularly from inflation data and additional Fed commentary, kept sentiment cautious across Asian markets.
Dollar Steadies as June Rate Cut Expectations Diminish
In Asian trading, both the dollar index and dollar index futures saw slight gains, building on momentum generated by a nonfarm payrolls report for March that surpassed expectations. The report, indicating a strong U.S. labor market, prompted a notable reduction in expectations for a Fed interest rate cut as early as June.
Traders are now pricing in roughly a 51% probability of a 25 basis point cut in June, down from 55% the previous week. Conversely, the likelihood of the Fed holding rates increased to 46.8% from 39.6% over the same period, according to the CME Fedwatch tool.
Further insights on inflation are anticipated Wednesday with the release of consumer price index data for March. Additionally, the minutes from the Fed’s March meeting, scheduled for release the same day, are expected to provide additional guidance following numerous statements from Fed officials indicating a reluctance to lower rates hastily.
The prospect of prolonged higher rates in the U.S. exerts pressure on Asian currencies, contributing to a subdued trading environment across the region on Monday.
USDJPY Steadies, Attention Shifts to Intervention Levels
The Japanese yen saw minimal movement on Monday, with the USDJPY pair hovering near the 152 level. Although the pair retreated from its 34-year high above 152 last week, it showed signs of regaining momentum toward those levels. Authorities in Japan are closely monitoring levels above 152, with verbal warnings from Japanese officials suggesting potential intervention if necessary.
Japanese wage growth data for February met expectations, but the anticipation of increasing wages in the coming months could signal a more hawkish stance from the Bank of Japan.
Elsewhere in Asia, the Chinese yuan saw limited movement, with the USDCNY pair near five-month highs. While recent sessions witnessed renewed selling pressure on the currency, further appreciation in the USDCNY pair was curtailed by measures implemented by the People’s Bank of China.
The Australian dollar, as reflected in the AUDUSD pair, recorded marginal gains, while the Indian rupee, indicated by the USDINR pair, remained above the 83 level.
Meanwhile, the South Korean won experienced slight weakening against the dollar, with the USDKRW pair edging up by 0.1%. The Singapore dollar, represented by the USDSGD pair, maintained stability.