Asian currencies remain muted as weak Chinese data weighs; dollar steady before Fed rate cut
Most Asian currencies traded in a tight range on Monday, with the Chinese yuan staying muted after another round of disappointing economic data. Meanwhile, the U.S. dollar held steady ahead of an expected interest rate cut by the Federal Reserve later this week.
In recent weeks, regional currencies gained some support as traders increased bets on a September Fed cut. Several weak U.S. economic readings strengthened this outlook. However, uncertainty over the scale of the Fed’s easing and its outlook for further cuts limited broader gains across Asian forex markets.
The Indian rupee underperformed, hitting record lows last week as worries grew over new U.S. trade tariffs linked to India’s Russian oil imports. On Monday, the USD/INR pair stayed well above 88.
The Japanese yen slipped 0.2% against the dollar in thin holiday trade, while the Australian dollar rose 0.2%. The Aussie stood out as a top performer last week, boosted by rising commodity prices.
The Singapore dollar remained flat, while the South Korean won dropped 0.4% against the greenback.
Yuan struggles as Chinese data stays weak, trade talks begin
The Chinese yuan fell slightly on Monday, keeping close to last week’s 10-month low. Economic data released in August showed weaker-than-expected industrial production, retail sales, and fixed asset investment.
Unemployment also rose unexpectedly to 5.3%, adding to signs of strain in China’s economy. Earlier inflation figures confirmed ongoing disinflationary pressures. The weak data highlighted slowing domestic demand and export challenges, as U.S. trade tariffs continued to weigh heavily.
Still, the yuan had logged gains through August and September, supported by Beijing’s strong daily midpoint fixings. Analysts believe China is propping up the currency to keep exports competitive.
High-level U.S.-China trade talks began on Sunday, aiming for a longer-term truce. However, semiconductors emerged as a major sticking point, with Beijing opening a probe into U.S. chip trade policies.
Dollar steady with Fed meeting in focus
The U.S. dollar index and futures both steadied in Asian trade, after modest gains last week. But the dollar remains pressured by market conviction that the Federal Reserve will cut interest rates this week.
According to CME FedWatch, markets are pricing in a 96.4% probability of a 25 basis point cut at the Fed’s September 16–17 meeting, with only a 3.6% chance of a 50 bps cut.
Rate-cut bets gained momentum after weak U.S. labor market data and softer-than-expected inflation for August. Still, investors remain cautious over the Fed’s guidance on future easing, which will be critical for currency markets.
