Global currencies traded lower in Asian trading on Monday local time as investors anticipated a series of central bank meetings this week, which would provide guidance on future rate hikes in various countries.
Activity in Hong Kong, mainland China and Singapore’s forex markets was subdued due to Labor Day, but Japanese, Australian and New Zealand markets proceeded as usual.
At one point, the Japanese yen fell by 0.2 percent to trade at 136.67 per dollar, extending its downward trend after the Bank of Japan announced that it would maintain the country’s low-interest-rate policy and yield curve control. On Friday, the currency slid 1.7 percent, its biggest daily decline since early February, immediately after the announcement.
The Australian dollar declined by 0.1 percent to $0.6610 after falling 1.1 percent last week to hit a seven-week low of $0.6573. Analysts, however, pointed out that the currency had solid support at the March trough of $0.6564.
In the same session, the New Zealand dollar eased by 0.3 percent $0.6172. The currency posted a 2.3 percent gain against the yen on Friday as investors expected the Reserve Bank of New Zealand to do more interest rate hikes.
Analysts said the expectations on the central bank policies influenced the market’s sentiment at the beginning of the week. The market expects the U.S. Federal Reserve to increase the interest rate by 25 basis points like the previous meeting this Wednesday. Goldman Sachs analysts said Fed officials would likely signal a pause in June in a note to clients.
According to Goldman Sachs, the market will focus on revisions to the forward guidance of the Fed’s statement after the rate hike.
“Beyond May, we expect the FOMC to hold rates steady for the rest of the year, though several paths are possible, with much depending on how severely the bank stress affects the economy.”
Goldman Sach analysts
The Reserve Bank of Australia is projected to do another rate hike pause in its meeting this Tuesday. The central bank paused its monetary tightening campaign for the first time last month, saying that the previous hikes had begun to slow the country’s inflation pace.
Meanwhile, experts said the European Central Bank (ECB) could hike its benchmark rate by 50 basis points on Thursday, as other central banks had reduced their hike sizes to 25 basis points. The International Monetary Fund recently suggested the ECB continue its monetary tightening cycle to mid-2024 as inflation remained high within the bloc.
China’s update, banking turmoil follow-ups weigh on forex market
Analysts said the unexpected contraction of manufacturing activity in China last month had weighed on the market’s risk sentiment. China’s National Bureau of Statistics reported that the manufacturing purchasing managers’ index fell to 49.2 in April from 51.9 the month before, lower than the earlier estimates of 51.4.
According to economists, China’s factory output lagged as market demand declined because of slow global growth. Industry players in China reported difficulty obtaining more investments and must let go of some workers. The manufacturing sector in China currently accounts for 18 percent of its national workforce.
In addition to the news from China, the aftermath of March’s banking turmoil in the U.S. also influenced the market’s sentiment. Some major U.S. banks placed their final bids on the troubled First Republic Bank over the weekend, with JPMorgan Chase winning the bid.
The U.S. Federal Deposit Insurance Corp auctioned the First Republic after the San Francisco-based lender reported a liquidity crunch, with $100 billion in deposits leaving the bank throughout the year’s first three months. The now-defunct Silicon Valley Bank and Signature Bank also experienced a similar issue. The banks’ sudden closures created volatility in financial markets in March.