Dollar Gains Amid Weak Chinese Stimulus and Japanese Holiday, Markets Await U.S. Data
The U.S. dollar strengthened in Asian trading on Monday, holding onto its gains and even extending them, as a holiday in Japan reduced market liquidity. Investors’ attention remained focused on China’s underwhelming weekend stimulus announcements, which failed to meet market expectations.
The euro declined by 0.13%, trading at $1.0922, while the British pound fell 0.2% at one point, although it remained largely unchanged. The dollar also gained 0.13% against the Japanese yen, reaching 149.2750. Meanwhile, the dollar index hovered above 103, nearing its peak from the previous week, the highest level since mid-August. This comes as traders scale back expectations of significant rate cuts by the Federal Reserve for the remainder of the year.
In contrast, China’s yuan slipped 0.2% against the dollar, and the Australian dollar closely tied to China’s economic performance dipped 0.16% to $0.67385. Over the weekend, China announced plans to “significantly increase” government debt issuance, offering subsidies to low-income individuals, supporting the property market, and bolstering state banks’ capital in an effort to revive its struggling economic growth.
However, the lack of specific details about the size of the fiscal stimulus left markets disappointed. According to Finance Minister Lan Foan, more “counter-cyclical measures” are expected later this year. Richard Franulovich, head of FX strategy at Westpac, commented that markets had hoped for more concrete stimulus announcements. He noted that the Australian dollar might only see a limited lift unless China addresses deeper issues, such as excess housing supply, local government debt, and demographic challenges related to its aging population.
Since September 24, when the People’s Bank of China launched its most aggressive stimulus measures since the pandemic, the onshore yuan has dropped 0.7% against the dollar. While China’s CSI300 Index has seen impressive gains of 18%, recent stock market performance has been shaky, reflecting uncertainty about whether the policy measures will be enough to boost economic growth.
FX strategist Christopher Wong from OCBC in Singapore noted that although more targeted measures are needed, they should be implemented quickly to meet market expectations. He cautioned that a gap between expectations and delivery could result in further market disappointment.
In other currencies, the New Zealand dollar fell 0.15% to $0.61, following a sharp 0.8% drop last week after the Reserve Bank of New Zealand slashed rates by 50 basis points, signaling further cuts. Meanwhile, Singapore’s central bank maintained its currency based monetary policy on Monday.
Looking ahead, traders are focusing on U.S. retail sales and jobless claims data set for release on Thursday, along with a policy review by the European Central Bank. U.S. Treasuries are expected to provide little direction as both U.S. and Japanese markets are closed for holidays. Last week’s U.S. economic data, which showed higher-than-expected inflation and increased jobless claims, maintained expectations for the Federal Reserve to cut rates by 25 basis points in both November and December.
Finally, Federal Reserve Governor Christopher Waller is set to speak later on Monday, with markets keen to hear his views on the potential for larger rate cuts.
