Australian Dollar Rises as Japanese Yen Stabilizes
The Australian dollar, a key indicator of Asian risk sentiment, has risen by 0.3% to reach a high of over four months. At the same time, the Japanese yen has stabilized near its four-month high against the dollar, following a significant appreciation in recent trading sessions. The future direction for the yen remains uncertain as the Bank of Japan is expected to maintain its ultra-dovish stance in its upcoming final meeting for the year. Furthermore, preliminary purchasing managers index data suggests that the Japanese economy is facing deeper-than-expected contraction in manufacturing activity. As for outliers during the day, South Korea’s won has fallen by 0.2% after experiencing a strong run this week, while the Indian rupee has remained relatively unchanged against a weaker dollar. Although India’s economy has shown positive signs, caution remains due to the country’s sizable trade deficit. The Reserve Bank of India has also signaled no further interest rate hikes, despite a recent uptick in inflation.
Fed’s Comments Impact Dollar’s Performance and Treasury Yields
The weakening trend of the greenback continues, with an expected 2% loss this week following the Federal Reserve’s announcement that it has finished raising interest rates and predicts deeper rate cuts in 2024. These comments have led to significant losses in U.S. Treasury yields and reduced the appeal of the dollar. Traders have begun speculating on the timing of the Fed’s interest rate trimming. According to Fed fund futures prices, there is now over a 70% chance of a rate cut in March 2024. Goldman Sachs anticipates that the central bank will implement three consecutive 25 basis point cuts, starting in March.