The Federal Reserve's warning and indications of further economic challenges for China caused most Asian currencies to weaken on Tuesday. The Australian dollar also declined as a result of the Reserve Bank's dovish comments. The Minneapolis Fed President Neel Kashkari issued a warning against getting too excited about the Fed's rate-hike cycle coming to an …
The Federal Reserve’s warning and indications of further economic challenges for China caused most Asian currencies to weaken on Tuesday. The Australian dollar also declined as a result of the Reserve Bank’s dovish comments. The Minneapolis Fed President Neel Kashkari issued a warning against getting too excited about the Fed’s rate-hike cycle coming to an end, which caused the US dollar to rise from six-week lows and strengthen in Asian trade. His remarks dampened some traders’ hopes for an end to the Fed’s tightening cycle this year, and the sharp increase in risk-driven asset prices during the previous four sessions was retracted.
Asian currencies lost much of their recent gains as a result, with the Japanese yen once more falling below the 150 mark against the US dollar. The Malaysian ringgit and the rate-sensitive South Korean won both dropped by 0.7%, and the Indian rupee was close to record lows. Among its counterparts, the Australian dollar fared the worst, falling 0.8% following the Reserve Bank of Australia’s (RBA) anticipated rate hike and indication of a more sticky inflation outlook. The increase was primarily prompted by a third-quarter inflation reading that was higher than anticipated, reversing an earlier trend of declining inflation. However, traders gambled that the central bank was finished with its cycle of rate hikes due to a shift in the RBA’s wording, particularly with reference to more rate hikes. In particular, compared to earlier signals, the RBA provided a more data-driven stance on impending monetary tightening.
Nevertheless, the rate increase on Tuesday brought Australian rates to a 12-year high. The report revealed that China’s exports decreased more than anticipated in October, and the trade surplus declined to its lowest point in 17 months. This led to a 0.1% decline in the value of the Chinese yuan. Although imports surprisingly increased, weakening exports point to a persistent downturn in China’s exporters, which are the country’s main economic drivers. The country’s main export destinations in the West were experiencing declining demand, which was mostly responsible for this loss. Broader Asian markets, which rely on China as a trading hub, are not well served by the country’s weakness. Later in the week, Chinese inflation data is anticipated to provide additional insights into the Asian behemoth.
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