Asia FX muted, yuan at 4-yr high; dollar drifts lower ahead of c.bank-packed week

 Most Asian currencies moved little on Monday, while the dollar drifted lower as focus turned to a host of key central bank meetings which are due this week, most notably the Federal Reserve. 

The Japanese yen was muted before a Bank of Japan meeting later in the week, while the Chinese yuan inched up to a fresh four-year high amid continued support from the People’s Bank. 

Regional markets took some relief from a drop in oil prices, which fell from six-month highs following a report that top officials from Mecca pact countries were set to meet Iranian officials in Tehran. 

But most Asian currencies remained on the backfoot amid increasing anxiety over sticky U.S. inflation and rising interest rates in the developed world. 

Dollar dips with Fed set to hold rates this week 

The dollar index and dollar index futures fell 0.17% apiece in Asian trade, extending their losses after hitting a 18-month high earlier in October. 

The Fed is set to kick off a two-day meeting on Tuesday, and is widely expected to leave interest rates unchanged at 4.0% on Wednesday.

This comes after the central bank hiked rates by 25 basis points in September– its first such move in over three years– as it raced to contain increasingly sticky U.S. inflation.  

Despite expectations for a hold in October, markets were wary of any hawkish signals from the central bank, especially as recent data showed U.S. inflation remaining comfortably above the Fed’s 2% annual target. 

Beyond the rate decision, focus will be squarely on comments from Fed Chair Kevin Warsh for any more cues on monetary policy. 

Focus this week is also on U.S. gross domestic product data for the third quarter, along with PCE price index data– the Fed’s preferred inflation gauge– for September. 

Japanese yen muted before BOJ, yuan at 4-yr high

Among Asian currencies, the Japanese yen’s USD/JPY pair moved little on Monday, with traders staying on the sidelines before a BOJ meeting later in the week.

While the central bank is widely expected to leave rates unchanged at 1.25%, after two 25 bps hikes this year, the BOJ is also expected to present a hawkish outlook in the face of sticky inflation. 

Markets expect the central bank to raise interest rates again in December, especially in the face of a looming increase in inflation from the end of Japanese subsidies on fuel. 

The Chinese yuan’s USD/CNY pair fell slightly, but hit its lowest level since June 2022, following a series of strong midpoint fixes from the People’s Bank.

China was seen shoring up the yuan in part to ease trade tensions with the West, while also giving the People’s Bank more headway to potentially loosen policy and support growth. 

China’s ruling Communist Party kicked off its fifth plenum on Monday, with Beijing largely expected to outline more plans for fiscal support and economic growth.

The plenum is a closed-door meeting of China’s highest-ranking officials, and is set to run until Thursday. 

Broader Asian currencies mostly tread water on Monday. The Singapore dollar’s USD/SGD pair was flat, while the South Korean won’s USD/KRW pair fell 0.2%.

The Australian dollar’s AUD/USD pair fell 0.07%, while the Indian rupee’s USD/INR pair rose 0.3% and remained close to record highs, despite repeated attempts at support from India’s central bank.