Asia FX: yuan boosted by China stimulus cheer, Aussie rises before RBA

Most Asian currencies advanced on Tuesday with the Chinese yuan supported by Beijing announcing more stimulus measures, while the Australian dollar rose in anticipation of hawkish signals from the Reserve Bank.

A softer U.S. dollar aided regional markets, as the greenback remained subdued after a bumper interest rate cut by the Federal Reserve last week. Focus this week is on more cues from the Fed, as well as key inflation data. 

Sentiment towards regional markets was further boosted by the Chinese government rolling out more stimulus measures aimed at shoring up laggard economic growth.  Chinese yuan hits 16-mth high on stimulus cheer 

The Chinese yuan firmed on Tuesday, with the USDCNY pair falling 0.2% to its lowest level since May 2023. 

Chinese markets rallied after the government announced a barrage of stimulus measures, with standouts being a reduction in reserve requirements for banks, along with lower mortgage rates to boost the property market. 

The move ramped up hopes over a recovery in Asia’s biggest economy, which could then spill over into the region. But recent economic readings showed a steady slowdown in activity through most of the third quarter. 

Lower rates also herald more weakness in the yuan, although recent government intervention kept the currency strong. 

The yuan’s USDCNH offshore pair also fell 0.2% to a 16-month low.  Australian dollar rises with RBA on tap

The Australian dollar firmed, with the AUDUSD pair rising 0.2% and coming close to a 2024 peak.

The RBA is widely expected to keep interest rates unchanged at the conclusion of a meeting later in the day. 

But recent signs of sticky inflation and a robust labor market are expected to draw a hawkish stance from the central bank, with the RBA likely to signal rates will remain high for longer. 

Such a trend makes the RBA an outlier among its global peers, but also benefits the Aussie. 

Broader Asian currencies firmed. The Japanese yen’s USDJPY pair steadied after falling sharply in overnight trade. Purchasing managers index data showed a sustained decline in Japanese manufacturing activity, while the services sector grew further. 

The South Korean won’s USDKRW pair fell slightly. 

The dollar index and dollar index futures steadied in Asian trade after logging a slow start to the week.

The Singapore dollar’s USDSGD pair fell slightly, while the Indian rupee’s USDINR pair pulled back further from record highs. 

Source: Investing.com