Asian currencies strengthened on Friday as the Japanese yen headed for its best weekly performance since late July.
At the same time, the US dollar came under pressure after Federal Reserve Governor Christopher Waller signaled that he could support keeping interest rates unchanged if inflation continues to ease.
Markets are now focused on the latest US payrolls report, which could influence expectations for the Federal Reserve’s September policy meeting.
Yen Heads for Best Week Since July
The Japanese yen remained one of the strongest currencies in the region.
USD/JPY traded around 156.36, although the yen had strengthened earlier to about 155.25 per dollar.
That brought the currency close to the 155.20 level reached last month following Japan’s July intervention.
The yen is now on track to gain around 2.5% this week. That would mark its strongest weekly advance since late July.
During that period, Japan and the United States carried out a rare joint intervention aimed at supporting the Japanese currency.
Bank of Japan Rate Hike Expectations Rise
There has been no clear evidence that Japanese authorities intervened again during the latest yen rally.
Instead, analysts have linked the move to growing expectations that the Bank of Japan could adopt a more hawkish stance.
The BOJ is scheduled to hold its next policy meeting on September 17 and 18.
Markets are now pricing in a strong chance of another interest rate increase after the central bank raised its policy rate to 1% in June.
Earlier this week, BOJ board member Hajime Takata said interest rate decisions should be made on a meeting-by-meeting basis.
He also indicated that the central bank should not follow a fixed schedule for future rate changes.
Yen Intervention Risk Remains in Focus
Japan’s top currency diplomat, Atsushi Mimura, said on Friday that authorities remain alert to movements in the foreign exchange market.
He also confirmed that Japanese officials remain in regular contact with US authorities.
Those comments kept the possibility of another yen-buying intervention in focus.
The latest rally has already pushed the currency close to levels seen following the July intervention.
Dollar Weakens as Fed Rate Hike Bets Fade
The US Dollar Index traded near 99.06 and was on track for a weekly decline of around 0.7%.
Pressure on the dollar increased after Waller said recent data showed signs of easing inflation.
He added that he would support keeping rates unchanged at the September meeting if upcoming economic reports confirmed that trend.
Markets responded by reducing expectations for another Fed rate increase.
The implied probability of a September hike fell to around 50%, down from roughly 63% a day earlier.
US Payrolls Report Takes Center Stage
Traders are now waiting for the latest US employment report for further clues about Federal Reserve policy.
Economists expect the US economy to have added around 56,000 jobs in August.
That would follow a decline of 23,000 jobs in July.
The unemployment rate is expected to remain unchanged at 4.1%.
A weaker-than-expected jobs report could reduce rate hike expectations further.
However, stronger employment data could give the Federal Reserve more room to tighten monetary policy.
Chinese Yuan Holds Steady
The Chinese yuan remained relatively stable against the US dollar.
Both offshore and onshore yuan trading showed limited movement.
The currency continued to receive support from the weaker dollar.
However, investors are still assessing mixed economic signals from China, including stronger private-sector services data and softer official economic indicators.
New Zealand Dollar Gains After RBNZ Rate Hike
The New Zealand dollar strengthened, with USD/NZD falling around 0.3%.
The kiwi traded near $0.59 after recovering from earlier weakness.
The Reserve Bank of New Zealand raised its policy rate by 25 basis points to 2.75% on Wednesday.
However, investors viewed the central bank’s guidance as less hawkish than expected.
Australian Dollar Supported by Economic Data
The Australian dollar also moved higher.
USD/AUD declined slightly, leaving the Australian currency trading near $0.72.
Australia’s economy expanded by 0.4% during the June quarter and grew 2.1% compared with the same period a year earlier.
The country’s July trade surplus was also broadly unchanged from June.
Asian Currencies React to Regional Rate Decisions
Bank Negara Malaysia kept its Overnight Policy Rate unchanged at 2.75% on Thursday.
The central bank said inflation had eased, although higher energy costs could continue to put pressure on consumer prices.
Elsewhere, USD/KRW slipped slightly to around 1,355.65, while USD/SGD edged higher.
The Indian rupee extended its weekly gains, while the Malaysian ringgit weakened modestly following the central bank’s rate decision.
Overall, Asian currency markets remained supported by a softer US dollar, rising expectations for a Bank of Japan rate hike and fading bets on further near-term Federal Reserve tightening.
