TOKYO/SINGAPORE – The dollar was firm on Tuesday, with Asian currencies weighed down by underwhelming data in China and the Australian dollar lower as traders figured that interest rates may have peaked Down Under.
The Reserve Bank of Australia left its benchmark cash rate on hold at 4.1 percent for a third month in a row, and although it left the door open to future increases, markets are pricing only about a 30-percent chance that rates go higher from here.
The Australian dollar was already falling before the decision, which was expected, and briefly hit a one-week low of $0.6417 immediately afterward. Australia’s current account surplus also came in smaller than expected on Tuesday.
“The RBA’s policy stance overall remains a weight on the Aussie, especially against the U.S. dollar, where the Fed funds rate seems highly likely to remain 125+ basis points above the RBA cash rate deep into 2024,” said Westpac analyst Sean Callow.
Elsewhere, China’s services activity expanded at its slowest pace in eight months in August to levels last seen when swathes of the country were under lockdown, according to the Caixin PMI.
The yuan fell about 0.2 percent to a one-week low of 7.2947 per dollar and the China-sensitive New Zealand dollar was dragged 0.4 percent lower to a one-week low of $0.5918.
“Various policy easing by the Chinese government have not convinced market participants the outlook for the Chinese economy and currency has improved,” said Joe Capurso, a strategist at the Commonwealth Bank of Australia in Sydney.
The sentiment kept the dollar steady on other majors, as traders looked ahead to U.S. markets’ returning from a break.
The euro was steady at $1.0789. U.S. Treasuries fell in Asia, after the cash market was closed on Monday, with 10-year yields up 4 basis points to 4.21 percent.
The yen edged to a one-week low and analysts see it grinding toward 150 per dollar unless there is a sharp change in the gap between Japanese yields, pegged near zero, and U.S. yields comfortably above 4 percent. A dollar last bought 146.72 yen.
A Japanese government bond auction on Tuesday was uneventful, leaving 10-year Japanese yields at 0.65%.
“I do believe that 150 probably will be defended again and the Ministry of Finance really probably wants to implant that in the market players,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank, referring to government FX intervention.
European producer prices are due on Tuesday, though they tend not to deviate much from previously released estimates, as are U.S. factory orders.
“The big thing is how the data pulse in each country plays out, which will inform whether these tightening cycles are definitely done – or maybe not,” said Imre Speizer, strategist at Westpac in Auckland. “It’s a waiting game.”
Sterling hovered at $1.2624.