Asia FX gains on increased US rate cut bets, China stimulus in focus

Most Asian currencies inched higher on Thursday as the U.S. inflation data cemented bets for a Federal Reserve interest rate cut next week, while focus was on China’s annual policy meeting for clues on fresh stimulus measures.

U.S. Consumer price index  data on Wednesday showed inflation rose at its fastest pace in seven months in November, but was largely in line with expectations. This led to markets pricing in a 98% chance for a cut next week, up from 81% seen last week, according to CME Fedwatch.

The US Dollar Index fell 0.2%, while US Dollar Index Futures also edged lower in Asia hours on Thursday, on rate cut expectations. Chinese yuan rises; focus on CEWC

The Chinese yuan’s offshore USD/CNH  pair fell 0.2% on Wednesday, while the onshore pair USD/CNY was largely unchanged.

Focus was now on China’s Central Economic Work Conference (CEWC), a two-day meeting which started on Wednesday. The CEWC is a pivotal event as it discusses how China will address internal challenges like slowing growth, weak consumption, and external pressures such as trade tensions.

Meanwhile, China's top leaders and policymakers are weighing the option of devaluing the yuan in 2025 in anticipation of increased U.S. trade tariffs when Donald Trump returns to the White House next month, Reuters reported on Thursday, citing sources.

This potential strategy highlights China's acknowledgment of the need for stronger economic stimulus to counter Trump's proposed punitive trade actions, the report said.

The South Korean won's USD/KRW pair rose 0.3% amid an ongoing political crisis in the country. Among recent developments, the South Korean police tried to raid President Yoon Suk Yeol's office on Wednesday, after he became subject to a criminal investigation over his attempt to declare martial law in the country.

"I will fight to the end," Yoon said on Thursday, while lashing out at his political opponents, amid demands to remove him from power via impeachment.

The Japanese yen's USD/JPY pair inched down 0.1% lower, while the Singapore dollar's USD/SGD pair ticked slightly lower.

Elsewhere, the Philippine peso's USD/PHP pair fell 0.3%, while the Indian rupee's USD/INR inched marginally higher.  Australian dollar jumps after employment data

Bucking the regional trend, the Australian dollar’s AUD/USD pair rose 0.8% on Thursday after data showed that the country’s employment  rose more than expected in November, as the labor market remained strong, while unemployment  unexpectedly fell.

The data led to market participants further paring bets that the Reserve Bank of Australia would cut interest rates in the near term. Broad consensus is that the RBA will begin easing in the second quarter of 2025.

The RBA on Tuesday had held the rates unchanged, citing tight labor market conditions and stubborn underlying inflation in the county.

Source: Investing.com