Anna 
On Monday, a majority of Asian currencies experienced a decline, with the Chinese yuan standing out as one of the weakest performers. This downtrend followed data indicating a sustained deflationary trend in China, while the U.S. dollar stabilized in anticipation of the upcoming Federal Reserve meeting.
The greenback exhibited strength on Friday, propelled by a nonfarm payrolls reading that exceeded expectations, diminishing prospects for an early interest rate cut by the Fed. Although the central bank is widely anticipated to maintain current rates this week, attention is focused on signals for 2024.
The Chinese yuan faced a 0.3% loss, with weekend data revealing a second consecutive month of disinflation, marked by the fastest decline in the consumer price index in three years. Concerns regarding a Chinese economic slowdown intensified, compounded by lackluster data prints for November. While a stronger daily midpoint fix from the People’s Bank of China restrained steeper losses, sentiment towards the yuan remained negative, potentially testing the 7.2 level once more.
This week, market attention shifts to Chinese industrial production, fixed asset investment, and retail sales data for November, scheduled for release on Friday. Apprehensions over China’s economic outlook reverberated in broader Asian currencies, with the Australian dollar, South Korean won, and Singapore dollar experiencing declines of 0.2%, 0.2%, and 0.1%, respectively.
The Japanese yen fell by 0.3% but hovered close to four-month highs from the previous week, driven by hawkish signals from the Bank of Japan. Despite expectations of continued ultra-loose policy in the near term, the yen faced downward pressure.
The Indian rupee neared record lows following the Reserve Bank’s decision to maintain interest rates last week. The RBI’s cautionary note on potential inflation upticks, coupled with impending consumer price index data for November, added to market uncertainty.
Meanwhile, the U.S. dollar exhibited modest gains in Asian trade, bolstered by Friday’s strong nonfarm payrolls data. Traders tempered expectations of an early 2024 interest rate cut, as reflected in a decline in Fed Fund futures prices from over 60% to a 43% chance of a 25 basis point cut in March.
As the Federal Reserve concludes its two-day meeting on Wednesday, focus intensifies on the central bank’s rate outlook, particularly in light of robust labor market indicators. The positive labor reading signals resilience in the U.S. economy, with additional attention on U.S. inflation data set for release later this week.
