Reports of more fiscal spending in China did little to improve sentiment
towards regional currencies, with the yuan hovering around its weakest
levels in 13 months.
Beyond the Fed, central bank decisions in Japan, Thailand, Indonesia and
the Philippines are also due this week, providing more cues on Asian
monetary policy going into 2025.
Most regional currencies were nursing losses against the dollar in recent
sessions as traders largely turned to the greenback in anticipation of a
slower pace of rate cuts in 2025.
Dollar steady with Fed outlook in focus
The dollar index and dollar index futures both steadied in Asian trade,
remaining in sight of a three-week high hit earlier this week.
The Fed is widely expected to cut interest rates by 25 basis points. But
traders are bracing for a potentially hawkish outlook from the central bank,
especially in light of recent data showing U.S. inflation remained sticky, and
the labor market strong.
The central bank is expected to signal a slower pace of easing in 2025, with
several analysts, including Goldman Sachs (NYSE:GS), predicting a hold in
January.
Stronger-than-expected retail sales data for November, released on
Tuesday, furthered expectations that the Fed will have enough headroom to
cut rates at a slower pace.
Expansionary and protectionist policies under incoming President Donald
Trump are also expected to underpin inflation and rates in the coming
years.
Chinese yuan near 13-mth low; fiscal target offers little
support
The Chinese yuan’s USD/CNY pair rose 0.1% on Wednesday, and was close
to its highest level since November 2023.
Reuters reported that China was planning to increase its budget deficit to
4% from 3% of gross domestic product in 2025, and was also targeting 5%
annual GDP growth for a third consecutive year.
While the move does entail higher fiscal spending, it also heralds pressure
on the yuan, given that China will likely further loosen monetary conditions
to facilitate its plans for increased stimulus.
BOJ, Asian central banks awaited
Focus this week is also on a string of key Asian central bank meetings.
Most notably is the Bank of Japan, which kicked off a two-day meeting on
Wednesday.
The Japanese yen was muted, with the USD/JPY pair hovering above 153.5
yen amid uncertainty over what the BOJ will do. Analysts are split between
expectations for a hold or a 25 basis point hike.
The Thai baht’s USD/THB pair rose 0.2%, with the Bank of Thailand widely
expected to keep rates steady later on Wednesday. The Indonesian rupiah’s
USD/IDR pair was also flat, with the country’s central bank set to keep rates
unchanged on Wednesday.
The Philippine peso’s USD/PHP pair tread water before a central bank
meeting on Thursday, where the Bangko Sentral ng Pilipinas is expected to
cut rates for a third time this year.
Broader Asian currencies moved in a flat-to-low range. The Australian
dollar’s AUD/USD pair fell 0.3%, while the Singapore dollar’s USD/SGD rose
0.1%.
Asia FX muted, dollar steady as Fed rate decision looms
