Asia FX muted, dollar at 3-week high as rate-cut uncertainty persists
Investing.com-- Most Asian currencies kept to a flat-to-low range on Thursday, while uncertainty over the Federal Reserve’s plans for interest rate cuts in 2024 saw the dollar rebound to a three-week high.
The minutes of the Federal Reserve’s December meeting provided little clarity on the bank’s plans for rate cuts this year, which further unsettled risk appetite after a weak start to 2024 for financial markets.
Asian currencies remained particularly sensitive to rate-cut anxiety, after having logged a largely dismal performance in 2023 on headwinds from higher interest rates. While regional currencies saw some relief towards the end of the year, the recovery was now on ice.
The Japanese yen moved little as local markets reopened after an extended new year’s holiday. Purchasing managers index (PMI) data showed that Japanese economic activity remained fragile, as the manufacturing sector remained in contraction in December.
Sentiment towards Japan was also dented by a devastating earthquake in central Japan, which killed scores of people and disrupted train lines in the region.
The Australian dollar rose 0.2%, although further gains were held back by PMI data showing the country’s service sector remained in contraction in December.
The Chinese yuan fell 0.1% on Thursday, with further losses in the currency held back by a substantially stronger-than-expected midpoint fix by the People’s Bank.
Sentiment towards China was dealt a fresh blow by Fitch downgrading the ratings of four major state-backed asset managers, and placing three of them on watch for more cuts.
The ratings agency cited increased headwinds for the firms from a property market slump, and also raised concerns over the government’s ability to provide
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