Anna 
Asian currencies experienced slight gains on Wednesday, buoyed by disappointing U.S. labor data, intensifying speculations of early interest rate cuts by the Federal Reserve. This optimistic outlook helped investors overlook persistent concerns surrounding China’s economy.
The latest Job Openings and Labor Turnover Survey (JOLTs) data revealed a decline in U.S. job openings in October, fueling expectations of a prolonged cooling in the labor market. This scenario, in turn, could limit the Federal Reserve’s ability to maintain higher interest rates for an extended period.
The impact of this reading was evident in the downward trend of Treasury yields, just days ahead of the closely-watched nonfarm payrolls data.
Asian currencies benefited from the optimism surrounding a less hawkish Federal Reserve. The Taiwan dollar and South Korean won each rose by 0.1%, while the Japanese yen stabilized after a notable recovery against the dollar in recent sessions.
Despite data indicating lower-than-expected growth in Australia’s economy in the third quarter due to declining export demand from China, the Australian dollar surged by 0.7%. The Reserve Bank’s decision to keep interest rates unchanged and adopt a data-driven approach to future hikes contributed to the currency’s strength.
However, the Indian rupee remained an outlier, hovering around record lows of over 83.3 due to the country’s substantial trade deficit, which offset optimism over robust economic growth.
In contrast, the Chinese yuan faced a 0.2% decline, reflecting a weaker daily midpoint fix by the People’s Bank of China. State-owned Chinese banks reportedly intervened in the market by selling dollars and buying yuan to support the Chinese currency after Moody’s downgraded the country’s credit outlook to negative. Moody’s also highlighted increased economic risks from a property market downturn, suggesting the need for additional stimulus from Beijing.
The uncertainty surrounding the timing of Federal Reserve rate cuts in 2024 provided some support to the U.S. dollar, which fell 0.1% in Asian trade but remained comfortably above recent lows. Despite market confidence in the Fed not raising interest rates further, the exact commencement date for rate cuts remained a major point of uncertainty. This uncertainty, coupled with anticipation of Friday’s nonfarm payrolls data, supported the U.S. dollar.
While traders are pricing in over a 50% chance of Fed rate cuts by March 2024, the central bank has maintained a higher-for-longer stance, reflecting the resilience of the U.S. economy and expectations of sustained inflation.
