Asia FX Remains Subdued, Yen Stabilizes as Dollar Gains Ahead of Nonfarm Payrolls

Most Asian currencies saw minimal movement on Friday, with the Japanese yen stabilizing near two-week highs, while the dollar gained ground amid cautious anticipation of key nonfarm payrolls data, raising concerns about U.S. interest rates.

Supporting the dollar were hawkish remarks from Federal Reserve officials, particularly Minneapolis Fed President Neel Kashkari, who suggested that persistent inflation might prevent the central bank from cutting interest rates at all in 2024. Such comments, echoing similar sentiments from other Fed officials, contributed to losses on Wall Street and kept traders wary of risk-oriented assets.

The dollar index and dollar index futures each rose by 0.2% in Asian trading on Friday, recovering from earlier losses as investors turned back to the greenback ahead of the nonfarm payrolls data release. The Fed’s key considerations for potential rate cuts this year are inflation and labor market strength. However, with inflation persisting and payroll data consistently surpassing expectations, market attention is keenly focused on these indicators.

The Japanese yen strengthened on Friday, pushing the USDJPY pair to a two-week low amid ongoing concerns about potential government intervention in currency markets. Japanese officials have cautioned against prolonged yen weakness, suggesting possible intervention if necessary. The USDJPY pair had recently reached its highest level in 34 years, despite a generally dovish outlook from the Bank of Japan following its first rate hike in 17 years. However, recent BOJ statements have hinted at further monetary policy tightening amidst rising inflation.

Other Asian currencies traded within narrow ranges as investors awaited the U.S. payrolls data. The Australian dollar declined by 0.3% against the USD after a larger-than-expected decrease in the country’s trade balance for February, primarily due to reduced iron ore exports to China. Chinese markets were closed for the day, but the offshore yuan (USDCNH) showed slight gains, remaining above the 7.2 level. The South Korean won weakened, with the USDKRW pair rising by 0.2%, while the Singapore dollar (USDSGD) also saw a modest increase of 0.1%. The Indian rupee remained flat against the USD, hovering near record highs ahead of a Reserve Bank of India meeting, with expectations for policy repo rates to remain at 6.5%.

(Investing)