Investing.com-- Most Asian currencies were muted on Thursday, nursing steep overnight losses as the dollar firmed tracking a spike in Treasury yields before a closely-watched address by Federal Reserve Chair Jerome Powell.
Sentiment remained frail amid little signs of deescalation in the Israel-Hamas war, which kept traders wary of risk-driven assets. This was exacerbated by a rout in the bond market, as traders positioned for higher interest rates.
The dollar benefited from this uncertainty, with the dollar index and dollar index futures gaining slightly in Asian trade. Both instruments rose about 0.3% in overnight trade, and were within sight of a 11-month peak.
Focus is now squarely on a speech by Fed Chair Powell at the Economic Club of New York later in the day. Given the recent rise in inflation, Powell is widely expected to reiterate his stance on higher-for-longer interest rates.
In Asia, the Japanese yen was muted on Thursday after tumbling close to the 150 level against the dollar- which markets believe could attract currency market intervention by the government.
The yen took little support from data showing an unexpected improvement in Japan’s trade balance, given that imports also plummeted past expectations. Focus this week is now on Japanese consumer inflation data, due Friday, which is likely to factor into the Bank of Japan’s plans to tighten monetary policy.
The Australian dollar was the worst performer for the day, losing 0.6% as data showed some cooling in the country’s labor market. Any further cooling is likely to give the Reserve Bank of Australia less impetus to raise interest rates.
The South Korean won shed 0.2% as the Bank of Korea kept interest rates on hold for a fifth straight meeting. The Indian rupee was flat, but trading within sight of record lows as a spike in oil prices pressured the South Asian currency.
Chinese yuan frail as property market jitters offset GDP cheer
The Chinese yuan traded sideways on Thursday after the People’s Bank made no changes to its daily midpoint from the prior session.
While the currency had taken some support from data showing that China’s economy grew more than expected in the third quarter, it had swiftly reversed course amid growing concerns over a property market default in the country. The yuan was trading close to annual lows, comfortably above the 7.3 level against the dollar.
Beleaguered developer Country Garden Holdings (HK:2007) appeared to have missed a key coupon payment on its offshore bond holdings, potentially heralding a default on its foreign debt. Such an event could trigger a string of defaults for the developer and trigger a massive debt restructuring for China’s property market.
A massive default in China's property market bodes poorly for the economy, given that the market accounts for roughly a quarter of local economic activity.
Focus this week is also on a loan prime rate decision by the PBOC, although the bank is widely expected to keep rates unchanged.