Asia FX muted amid rates, Trump speculation; yuan drifts higher on strong GDP

Most Asian currencies kept to a tight range on Friday, while the dollar nursed some weekly losses amid uncertainty over interest rates, while anticipation of President-elect Donald Trump’s inauguration also weighed. 

The Chinese yuan firmed slightly after gross domestic product data for the fourth quarter read better than expected. China’s economy grew in line with Beijing’s 5% forecast for the year. 

Regional currencies saw some relief this week, as the dollar slid from over two-year highs after soft inflation data. But other data still showed resilience in the U.S. economy, spurring uncertainty over the rate outlook. Chinese yuan firms slightly on strong Q4 GDP

The Chinese yuan firmed slightly, with the USD/CNY pair falling 0.1% after hitting an over one-year high this week.

China’s GDP grew 5.4% in the fourth quarter, more than expectations of 5%, as a barrage of recent stimulus measures bore fruit. 

Annual GDP read 5%, in line with Beijing’s target. Other data also showed China’s industrial production grew more than expected in December, as did retail sales, amid some signs of improving consumer spending. 

Friday’s data dump showed some resilience in the Chinese economy, as it faces increased trade tariffs under Trump. But Beijing is also expected to dole out more stimulus measures this year.

China-exposed currencies saw limited moves despite hopes that China’s economy was picking up. The Australian dollar’s AUD/USD pair firmed slightly, as did the South Korean won’s USDKRW and the Singapore dollar’s USD/SGD . 

Elsewhere, the Indian rupee’s USD/INR pair steadied just below record highs of over 86.6 rupees hit this week. Japanese yen firm ahead of BOJ

The Japanese yen steadied near its strongest level in nearly one month, with the USD/JPY pair hovering around 155.42 yen.

The yen firmed sharply this week as several Bank of Japan officials suggested that an interest rate hike was possible when the central bank meets next week .

This came as recent data showed strong Japanese wage growth and household spending, while inflation also remained steadily above the BOJ’s 2% annual target. 

A rate hike bodes well for the yen, which was battered by fears of high U.S. interest rates over the past month.  Dollar set to break 6-week winning streak with rates, Trump in focus 

The dollar index and dollar index futures both steadied in Asian trade after tumbling from an over two-year high this week. The greenback was also trading 0.7% for the week- its first weekly loss after six weeks of gains. 

Soft inflation data released this week spurred some bets that the Fed will still cut rates in 2025. But retail sales and jobless claims data showed consumer spending and the labor market remained strong, which could give the Fed more headroom to cut rates at a staggered pace. 

Traders were also on edge ahead of Trump’s inauguration on Monday. The President-elect has vowed to make sweeping policy changes, most notably imposing steep trade tariffs on China, from “day one” of his second term. 

Source: Investing.com