Asia FX muted amid US trade uncertainty; dollar struggles ahead of payrolls data

Investing.com-- Most Asian currencies moved in a flat-to-low range on Friday as a seemingly positive call between U.S. and Chinese leaders did little to lift uncertainty over Washington’s tariff policy.

Regional markets remained largely risk-averse, while the dollar also struggled ahead of key nonfarm payrolls data due later in the day, which is expected to read weak for May. 

The Indian rupee was little changed after the Reserve Bank of India cut interest rates by a bigger-than-expected margin on Friday. 

The Chinese yuan took little support from a call between U.S. President Donald Trump and Chinese President Xi Jinping, while the Japanese yen was pressured by more weak spending data. 

Dollar struggles ahead of nonfarm payrolls print 

The dollar index and dollar index futures both moved little in Asian trade, remaining near a recent six-week low. The greenback was also down about 0.6% this week. 

Focus was squarely on nonfarm payrolls data for May, due later on Friday, for more cues on the U.S. economy. 

Traders were seen positioning for a soft print, especially following a barrage of weak labor market readings from earlier this week. Uncertainty over the U.S. economy and Trump’s trade policies was seen impacting U.S. hiring trends in recent months. 

A cooling labor market is likely to put more pressure on the Federal Reserve to cut interest rates, with Trump also reiterating his call for lower rates. 

But the Fed is still expected to keep rates steady later in June. 

Chinese yuan little enthused by Trump-Xi call 

The Chinese yuan’s USDCNY pair rose 0.1%, as a call between Trump and Xi did little to lift sentiment over stalled trade talks between Washington and Beijing. 

Trump did tout a positive discussion with Xi, helping soothe some concerns over trade talks having stalled in recent weeks.

But traders were still holding out for a more permanent trade truce between the U.S. and China, after the two agreed to temporarily lower their steep trade tariffs in mid-May. 

Broader Asian currencies were largely rangebound in want of more cues on U.S. trade policies and economic health. 

The Japanese yen’s USDJPY pair rose 0.2%, with the yen pressured by growing doubts over whether the Bank of Japan had sufficient headroom to raise interest rates further. 

Weak household spending data on Friday, coupled with soft overall wage income data on Thursday, sparked concerns over just how much private spending will improve in the coming months. Weak spending stands to undermine Japanese growth and inflation, and could raise the BOJ’s threshold for more rate hikes. 

The Indian rupee’s USDINR pair remained largely rangebound after the RBI cut rates by 50 bps cut, much more than expectations for a 25 bps easing. The central bank also unexpectedly slashed its cash reserve ratio to 3% from 4%, as it moved to bolster local liquidity conditions. 

RBI Governor Sanjay Malhotra said consumer price index inflation was now expected to undershoot the central bank’s 4% annual target in the current fiscal year. But he maintained forecasts for annual gross domestic product growth of 6.5%, flagging resilience in the Indian economy despite global trade and economic ructions. 

The Australian dollar’s AUDUSD pair fell 0.2%, remaining under pressure from a soft gross domestic product reading released earlier this week.

The Singapore dollar’s SGDUSD pair and the South Korean won’s USDKRW pair were both unchanged in holiday-thinned trade.