Asia FX rises on China optimism, dollar at 6-mth high

Investing.com– Most Asian currencies rose on Friday as more stimulus measures and positive economic readings from China helped boost risk appetite, while the dollar traded near six-month highs.

China announced another cut to its reserve requirements for local banks, unlocking more liquidity to support a slowing economic recovery. and data also read higher than expected for August, indicating some resilience in the economy.

The rose 0.3%, also taking support from a stronger daily midpoint fix by the People’s Bank. The central bank kept its medium-term lending rates steady on Friday, signaling more support for the yuan.

But the outlook for the Chinese currency still remained bleak, given that increased local liquidity is likely to drive renewed weakness in the yuan. Weak and data also showed that large portions of Asia’s largest economy- particularly the embattled property market- were still struggling.

Still, optimism over more stimulus measures in the country helped other China-exposed currencies log strong gains.

The rose 0.4%, while the and the firmed 0.2% and 0.1%, respectively. The won was also aided by data showing South Korea’s shrank slightly less than expected in August, as did the country’s . 

But despite some gains on Friday, most Asian currencies were still trading close to 2023 lows as markets bet that U.S. interest rates will remain higher for longer. 

The , which was one of the worst hit Asian currencies by rising U.S. interest rates, traded flat on Friday. Focus now turns to a meeting next week, following some signals from policymakers that an end to its negative rate regime was close.

pressured the , despite growing optimism over the South Asian economy. The rupee crossed the 83 mark in overnight trade, and was once again close to record lows. 

Dollar at 6-month peak after strong data, Fed meeting awaited

The and fell 0.1% each in Asian trade after hitting a six-month high in overnight trade.

Signs of resilience in the U.S. economy, following stronger-than-expected and data, were key drivers of a dollar rally this week.

But despite the strong inflation readings, traders largely maintained their bets that the Federal Reserve when it meets next week.

Still, the Fed is expected to reiterate its hawkish stance, and is likely to , with a rate cut only expected by mid-2024. 

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