Asian Currencies Set for Best Week in Two Months on Intervention
(Bloomberg) — Asian currencies are poised for their best week in nearly two months as regional policymakers increased their intervention efforts and rhetoric.
The Bloomberg Asia Dollar index has gained by 0.4% this week so far, the biggest advance since early March, spurred by suspected currency intervention from central banks, with the Japanese authorities at the forefront. Less hawkish signals from the Federal Reserve this week also supported regional currencies.
“Market participants are buying back EM Asia FX before nonfarm payrolls,” data in the US, while regional currencies are also helped by the unwinding flow of long USD/JPY, according to Ken Cheung, chief Asian FX strategist at Mizuho Bank.
As Jerome Powell indicated the Fed is likely to continue its wait-and-see mode even with another strong US jobs report, “risks of the USD are skewed to the downside,” Cheung added.
Asia Currencies Rise, Extending Further From 2024 Lows
The move comes after Asian currencies declined every month against the resurgent dollar this year, as a resilient American economy conspired to keep the greenback strong by pushing back expectations for lower US interest rates.
The yen outperformed all Asian and Group-of-10 currencies this week, amid likely intervention of about $23 billion from Japanese authorities, estimated based on current-account figures from the central bank.
This comes on the back of various intervention measures from Asian policymakers since April following signs of the Fed’s higher-for-longer stance.
Bank Indonesia surprised the markets by hiking rates to defend the rupiah in late April, while the finance chiefs from South Korea, Japan and the US signaled increased appetite for their Asian counterparts to defend their respective currencies.
The South Korean won has pulled back after falling to 1,400 per dollar mid-April, the lowest level in more than a year. The Bank of Korea Governor on Friday also signaled a potential delay to rate cuts to defend the currency.
Fed Chair Powell downplaying the prospect of rate hikes at this week’s policy decision also boosted Asian currencies. Investors will be awaiting the release of US nonfarm payrolls on Friday for further clues on the Fed’s rate trajectory.
“The fear of higher US dollar and rates for longer was the Achilles heel of Asian FX,” said Fiona Lim, a senior currency strategist at Malayan Banking Bhd. “The current recovery of yen and yuan can add a boost to regional FX just as they had likely amplified the effects of higher US rates before.”
(Updates weekly performance in the second paragraph)
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