The week ahead should be an interesting one for Asian financial markets, with the highlights being China’s 19th National Congress, the latest numbers for Chinese economic growth, the Bank of Korea’s monetary policy meeting and Japanese trade data.
Further to that, and to the events outlined below, investors should look with care to Federal Reserve speakers on Sunday and Wednesday (Asian time zones) and to Tuesday’s US data for industrial production, all of which may influence risk appetite and, of course, the dollar side of Asian FX pairs.
With the unsurprising exception of the Philippine peso – Asia’s worst performing currency of the year – Asia-Pac’s most actively traded currencies made gains against the US dollar on Tuesday.
Although limited, gains were somewhat easy to come by as risk appetite returned after the President of Catalonia, Carles Puigdemont, held off on formally declaring the region’s independence from Spain, and by doing so, stepped back from what had looked like the precipice of a constitutional crisis in Europe’s fourth largest economy.
On Thursday, the central bank of the Philippines, Bangko Sentral ng Pilipinas, maintained what many analysts consider to be a dovish stance by leaving interest rates on hold at a record low of 3.0% and by expressing no discomfort with a national currency that has fallen to its weakest levels since 2006.
Currencies in the Asia-Pacific region fell against the US dollar on Thursday morning after the Federal Reserve signaled that it would raise interest rates again this year and would begin shrinking its balance sheet in October. The Fed funds rate was left unchanged at its current range of 1–1.25%.
Although the majority of economists had expected this would be the Fed’s position, for some, doubt had crept in following hurricanes Harvey and Irma.
To the surprise of many, the Bank of Canada raised interest rates on Wednesday to 1.0%, from 0.75%, which sent currencies in the Asia-Pacific region tumbling against the Canadian dollar.
The Bank of Canada had been expected to raise the cost of borrowing again this year, following a quarter-point hike in July, but most analysts had been predicting a move in October.
Most Asian currencies ended Wednesday higher against the dollar, albeit on a rather unspectacular day of trading. With a few exceptions, markets traded quietly ahead of the Jackson Hole symposium (24-26 August) at which Fed Chairwoman Janet Yellen and ECB President Mario Draghi might give important updates on monetary policy.
The star of the day in Asia was without doubt the Korean won.
Fuelled by a return to “risk-on” amid easing geopolitical tensions and ahead of a crucial employment report, the Australian dollar rose broadly and was the currency world’s best performer yesterday.
Notable exchange rates include AUD/NZD, which rallied to a fifteen-week high of N$1.087, and AUD/GBP, which rallied to a four-and-a-half-month high of £0.616.
The yen fell by nearly a percent yesterday against the US dollar – its biggest one-day fall in six weeks – as investors regained their appetite for risk amid an easing of the tense situation surrounding North Korea.
The yen, which has long been considered the FX world’s premier safe haven, typically falls in value against other currencies during periods of geopolitical stability and rises with uncertainty.