Asia FX edges lower as dollar near 3-week high, Chinese retail sales disappoint

Most Asian currencies edged lower on Monday as the dollar remained near a three-week high ahead of the Federal Reserve meeting, while China's weaker-than-expected retail sales data stoked concerns about the country’s economic recovery. 

The U.S. Fed is expected to cut interest rates by 25 basis points this week, however, the dollar has been bolstered by expectations of a slower rate cut path by the Fed in 2025.

In Asia, although interest rates are also expected to decline, the cuts are projected to be more gradual, limiting the degree of currency appreciation relative to the U.S. dollar.

The US Dollar Index inched slightly lower in Asian trade on Monday but was hovering near a three-week high mark. The US Dollar Index Futures marginally lower. Chinese yuan slips after weak retail sales data

The Chinese yuan’s onshore USD/CNY  pair rose 0.2% and remained near a two-year high mark, while the offshore pair USD/CNH  edged 0.1% higher.

Chinese industrial production  grew as expected in November as recent stimulus measures from Beijing supported business activity, data showed on Monday.

However, retail sales  for November were much lower compared to forecasts, and below last year’s reading, reflecting ongoing weakness in consumer spending despite policy support.

“Household confidence clearly remains soft, and it remains to be seen if the ‘vigorous support’ for consumption promised next year will be effective in stimulating a recovery. We expect the rollout of supportive policies could take some time, but overall retail sales growth should recover in 2025,” ING analysts said in a note.

The lingering slowdown in China is weighing on regional currencies. China's weaker-than-expected retail sales and ongoing challenges in its recovery are creating uncertainty across the broader Asia-Pacific region. Dollar near 3-week high, Asia FX dips

The dollar index was hovering near its highest level since November 26, even as traders positioned for a Fed rate cut next week.

With the U.S. dollar remaining and slower adjustments in rate policies across Asia, the outlook for regional currencies remains pressured. Also, incoming President Donald Trump’s policies to impose additional tariffs on China or competitive devaluations in response to tariffs are both seen as dollar-positive.

The Japanese yen’s USD/JPY  pair inched up 0.1% as the Bank of Japan was likely to keep interest rates  unchanged this week, in contrast to earlier expectations of a hike.

The Singapore dollar’s USD/SGD  pair inched slightly higher, while the Australian dollar’s AUD/USD  pair gained 0.3%.

The Indian rupee’s USD/INR  pair was largely unchanged, remaining near an all-time high hit last week.

The South Korean won’s USD/KRW  pair inched marginally higher. Country’s President Yoon Suk Yeol was impeached in a second vote by the opposition-led parliament on Saturday, over his attempt to impose martial law in the country.

South Korea's finance ministry vowed on Sunday to continue to swiftly deploy market stabilizing measures as needed to support the economy after the impeachment.

Source: Investing.com