Market News – At the start of the week, there was minimal movement in most Asian currencies. Simultaneously, the dollar maintained stability as market participants awaited outcomes from several central bank meetings scheduled for the week, with the Federal Reserve and Bank of Japan being the focal points.
Market sentiments were still influenced by the ongoing tensions between Israel and Hamas, as Israel initiated a major ground offensive in Gaza. However, the absence of further escalation in the hostilities provided a modicum of comfort to markets sensitive to geopolitical risks.
In Asian trading, both the dollar index and futures saw a modest consolidation, preserving most of the gains from the previous week. The cautious stance pervaded the market in anticipation of Wednesday’s Federal Reserve’s interest rate announcement. It is widely expected that the Fed will not alter interest rates but will indicate an inclination towards maintaining higher rates for an extended period to combat persistent inflation.
The prospect of higher interest rates in the U.S. is unfavorable for Asian currencies, as it diminishes the appeal of riskier assets due to the narrowing interest rate differential with safer investments. Moreover, U.S. Treasury yields experienced an uptick on Monday, staying close to the recent high points.
The sentiment towards Asian currencies was tentative, with most currencies exhibiting little to no change. An exception was the Australian dollar, which experienced a rise of nearly 0.4%, propelled by retail sales data for September that surpassed expectations.
This positive economic indicator has increased inflation expectations, suggesting that the Reserve Bank of Australia might opt for an interest rate hike in its upcoming meeting.
The Japanese yen demonstrated a slight fortification, staying below the 150 mark after reaching a one-year nadir the previous week.
Attention is now centered on the Bank of Japan’s meeting conclusion on Tuesday, with predictions that the central bank may introduce additional modifications to its yield curve control policy to address the challenges of high inflation and the substantial depreciation of the yen.
Having digested recent data showing a resurgence in Japanese consumer inflation, market participants speculate that the Bank of Japan might scale down its expansive monetary policy. Analysts also foresee a possible cessation of the bank’s negative interest rate policy by 2024.
Should the Bank of Japan adopt a more stringent stance, it could bolster the yen, one of the weakest Asian currencies this year. Additionally, there is speculation regarding potential interventions by the Japanese government in the currency markets to support the yen.
In other currency news, the Chinese yuan remained unchanged on Monday. The market’s attention was turned towards the impending release of the purchasing managers index data, which is projected to reflect some economic recovery in Asia’s largest economy.
The Indian rupee saw an increase of 0.2%, aligned with the downward trend in oil prices. Similarly, South Korea won, and the Taiwanese dollar each marked a 0.2% gain.
Aside from the Federal Reserve and the Bank of Japan, the Bank of England is poised to decide on interest rates in the same week. (source)