Asian Currencies Surge Due to Weak Dollar Following Inflation Data

Asian currencies climbed considerably on Friday, while the dollar hit almost one-year lows following weak inflation data, which prompted a greater possibility of a pause in the Federal Reserve’s interest rate increases. The Chinese yuan exhibited one of the best performances of the day, rising by 0.5% as a surprising rebound in exports led to the People’s Bank setting stronger daily midpoint fix. PBOC Governor Yi Gang reaffirmed the government’s objective of a 5% GDP for 2023.

Although Chinese economic statistics have indicated a somewhat unexceptional view of a recovering economy, a continuous upsurge in exports this year could stimulate a greater growth. The Taiwan dollar also went up by 0.2%, whereas the Indonesian rupiah fronted gains across Southeast Asia with a 0.6% increase. Similarly, the Japanese yen surged by 0.1% and maintained its strong overnight gains as the dollar retreated. Market predictions indicate that the Fed has limited room for interest rate hikes, with only one more hike anticipated in May, followed by a pause in June, as exhibited by the Fed Fund futures prices following the preceding weak data of a slower-than-expected rise in producer price index inflation and smaller-than-expected consumer price index inflation.

Several central banks globally have put their rate hike cycles on hold due to easing inflation and sluggish growth. The Monetary Authority of Singapore followed suit on Friday, coinciding with data that showed the country’s economy slowing more than expected in Q1 2023 due to a decline in manufacturing activity. This caused the Singapore dollar to lag behind its peers with a 0.2% decline. On the other hand, the Australian dollar saw a potential 1.7% increase this week following an employment report that was significantly better than anticipated.

Despite most Asian currencies performing well on Friday, there was still concern among investors regarding risk-driven assets due to fears of a 2023 recession. This sense of caution was fuelled further by the Fed expressing concerns about a potential mild recession later in the year. Consequently, safe-haven assets such as gold were among the top-performing assets this week.