Asia FX gains on weak dollar ahead of Trump inauguration, BoJ rate decision looms

Most Asian currencies edged higher on Monday as the dollar weakened ahead of U.S. President-elect Donald Trump’s inauguration, while the Chinese central bank kept benchmark lending rates unchanged to support the yuan.

Regional currencies saw marginal gains as markets were cautious ahead of Trump’s inauguration in anticipation of additional trade tariffs on Chinese exports. This could spark a trade war and affect most Asian economies because of their trade-reliant economy.

The US Dollar Index was 0.3% lower during Asian trading, retreating from a 26-month high reached last week. The greenback has consistently remained near a two-year high after the Federal Reserve turned hawkish last month.

US Dollar Index Futures were also down 0.3%. Chinese yuan largely muted even as PBOC maintains loan prime rates

The Chinese yuan’s onshore pair USD/CNY inched up 0.1%, while the offshore pair USD/CNH gained 0.2%.

The Chinese yuan traded in a narrow range on Monday, showing little reaction to the People’s Bank of China’s decision to keep its loan prime rates steady.

The PBOC kept its one-year loan prime rate unchanged at 3.1% and maintained the five-year rate , used for setting mortgage rates, at 3.60%. 

The move, aimed at supporting a weakening yuan, sustaining liquidity, and supporting economic recovery, did little to sway market sentiment for the currency. Japan, Malaysia interest rate decision awaited 

The Japanese yen’s USD/JPY pair fell 0.3% as markets priced in an interest rate hike at the Bank of Japan’s policy meeting due later this week.

The BOJ is expected to raise interest rates next week, provided there are no market disruptions following Trump’s inauguration. The central bank is likely to reiterate its commitment to further rate hikes if the economy maintains its recovery, Reuters reported on Friday citing sources familiar with the matter.

The Malaysian ringgit’s USD/MYR pair inched 0.1% lower ahead of the Bank Negara Malaysia’s interest rate decision . The BNM is expected to hold rates steady at 3.00% for the 10th straight meeting on Wednesday due to robust economic growth and controlled inflation, a Reuters poll showed.

Elsewhere, the Australian dollar’s AUD/USD  inched 0.2% higher, while the Singapore dollar’s USD/SGD pair fell 0.3%.

The Thai baht’s USD/THB pair was largely unchanged, while the Indian rupee’s USD/INR pair inched 0.1% lower.

The South Korean won’s USD/KRW pair fell 0.4% amid an ongoing political crisis in the country.

Source: Investing.com