Investing.com–Most Asian currencies traded within a tight range on Monday, benefiting little from a softer dollar, amid growing concerns about a slowdown in U.S. economic growth.
The Japanese yen was an outlier, strengthening sharply on safe haven demand and as the prospect of further rate hikes from the Bank of Japan supported the currency.
Other units such as the Chinese yuan also rose sharply, although this was mainly due to a substantially stronger-than-expected midpoint fix from the central bank.
Sentiment towards regional markets was battered by a continued sell-off in risk-driven assets, as a series of weak US economic data increased concerns about slowing growth and largely offset optimism about lower interest rates.
The Japanese yen is rising on demand for safe havens
The Japanese yen was the best performer in Asia on Monday, with the pair falling 1.4% to 144.53 yen, its weakest level since mid-January.
The yen extended its recent gains against the dollar after the Bank of Japan raised rates last week and said it plans to raise rates further this year amid some rebound in inflation and spending.
The minutes of the BOJ’s June meeting, released earlier on Monday, also presented an unexpectedly aggressive stance for the BOJ.
This was accompanied by data showing a sharp recovery in activity in Japan’s services sector, which also indicated some resilience in the economy.
Dollar weak due to fears of recession and interest rate cuts
The and fell 0.3% each in Asian trading, reaching their lowest levels in the past 4-½ months.
The dollar saw little safe-haven demand as deteriorating economic conditions in the US saw traders price in the potential of a widening series of interest rate cuts from the Federal Reserve.
Traders are now pricing in a 74% chance that the Fed will cut rates by 50 basis points in September, compared to previous bets on a 25 basis point cut.
The central bank is expected to cut interest rates by a total of 100 basis points this year, amid concerns about slowing economic growth. Such a scenario does not bode well for the dollar, and portends some strength in Asian currencies.
But weak risk appetite saw most Asian stocks weaker on Monday. The Australian dollar pair fell 0.2% on Tuesday, while the central bank is widely expected to keep interest rates unchanged after recent data showed inflation cooling slightly.
The Chinese yuan pair fell 0.3% to a six-month low, with most of the strength coming from a stronger-than-expected midpoint fix from the PBOC. July also saw central bank intervention in currency markets after a series of weak data on the Chinese economy hit the yuan.
But there was some resilience in the country’s services sector on Monday.
The South Korean won pair rose 0.2%, while the Indian rupee pair remained within sight of record highs.
