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Asian Currencies Drop after Disappointing Chinese Inflation, Dollar Remains Steady

The majority of Asian currencies fell on Friday as weak Chinese inflation data raised concerns over slowing growth in Asia’s largest economy, while the dollar steadied after falling sharply overnight with the Federal Reserve meeting approaching.

The Chinese yuan fell 0.1% to around a six-month low after China’s consumer inflation data fell in May from the previous month, while producer inflation fell to its highest rate in seven years – the end of the yuan devaluation shock.

The data comes after a series of weak economic releases from China in the past two weeks and indications of the country’s post-COVID economic rebound being largely exhausted.

Continued Chinese stimulus is in the spotlight, but the yuan will weaken
The weak economic trend from China is driving expectations that Beijing will roll out more economic stimulating measures in the coming months. China’s largest state banks cut their yuan deposit rates this week, potentially signaling a wider rate cut by the People’s Bank of China.

But this trend is an indication of more drag for the yuan, especially if the gap between local and overseas interest rates widens.

The Chinese government may also deliberately maintain the exchange rate of the yuan in order to prop up export earnings and local spending. However, the weak inflation data suggests Chinese consumers have so far been holding back their spending.

The weakness in China trickled into other Asian markets, although the broader losses were somewhat muted as an unexpected jump in weekly jobless claims boosted expectations of a pause in the Federal Reserve’s interest rate hike cycle.

The yen fell 0.2%, while the South Korean won was flat. The Australian dollar weakened 0.2% as markets weighed the country’s deteriorating economic trends against the prospect of an interest rate hike by the Reserve Bank of Australia.

The Indian rupee was steady after the Central Bank kept interest rates steady as expected on Thursday.

Dollar steady from overnight tumble, Fed pause in focus
The dollar was steady on Friday after falling sharply overnight after data showed US jobless claims surged throughout last week. The dollar index and dollar index futures were both up about 0.1% in Asian trading.

The weak employment data added to hopes the Fed will halt its rate hike cycle when it meets next week, given other economic indicators also point to a cooling US economy. While the move could provide short-term relief for the Asian currency, its gains are expected to be limited as US interest rates are set to remain higher for a longer time.

Deteriorating economic trends in China are also expected to limit the attractiveness of most Asian currencies, due to the country’s large trade exposure.

This morning GBP/JPY rose 0.14%, EUR/JPY rose 0.2%, GBPUSD fell 0.1%, EURUSD fell 0.06%, and USD/CHF rose 0.04% at 11.10 WIB.

In Indonesia, the JCI fell 0.14% and the rupiah fell 0.08% to 14,854.0 per US dollar. JPY/IDR fell 0.19%, AUD/IDR fell 0.19%, and SGD/IDR fell 0.02%.

The bitcoin cryptocurrency is up 0.44% BTC/USD, ethereum is up 0.24% (ETH/USD) and BTC/IDR is up 0.71%. Dogecoin is up 0.69%, XRP is up 1.47%, Cardano is down 0.59% ADA/USD, Shiba Inu is up 1% and ETC/USD is down 0.35%.

Source : Investing.com