Asia FX muted as dollar steadies near 3-mth high; RBA rate decision in focus

Investing.com-- Most Asian currencies kept to a tight range on Monday, extending a muted performance against the dollar after the Federal Reserve last week downplayed bets on a December rate cut. 

The Chinese yuan took little support from a new trade deal between the U.S. and China, while the Australian dollar tread water before the conclusion of a Reserve Bank of Australia meeting on Tuesday, where the central bank is widely expected to leave rates unchanged.

The Japanese yen languished at its weakest levels in nine months as markets remained largely dovish on future interest rate hikes by the Bank of Japan. But a market holiday in Japan kept Asian trading volumes thin. 

Dollar steadies near 3-mth high ahead of labor data 

The dollar index and dollar index futures fell slightly in Asian trade, but remained close to a three-month high hit on Friday. 

Focus this week is squarely on a host of private readings on the U.S. labor market. An ongoing government shutdown, which is now set to enter a full month, delayed the release of most official readings on the economy. 

The private labor data will be closely watched for more cues on interest rates, especially after Fed Chair Jerome Powell last week downplayed expectations for a December rate cut. 

Powell’s comments, which came after a 25 basis point rate cut, were a major driver of recent dollar strength. A U.S.-China trade deal, which will secure rare earth supplies for at least a year, also aided the greenback. 

Aussie dollar flat as RBA decision looms 

The Australian dollar’s AUD/USD pair moved in a flat-to-low range on Monday, with focus squarely on the RBA’s decision on Tuesday.

The central bank is widely expected to leave rates unchanged and present a hawkish outlook, especially after inflation read hotter than expected in the third quarter. 

While the RBA had cut interest rates steadily this year, it was seen turning slightly hawkish in recent months due to sticky Australian inflation and resilience in the labor market. Comments from Governor Michele Bullock will be closely watched for more cues. 

Broader Asian currencies moved little on Monday, amid thin trading volumes and a dearth of immediate cues.

The Japanese yen’s USD/JPY pair was flat around 154 yen, and remained close to its highest level since early-February.

The Chinese yuan’s USD/CNY pair hovered around 7.116 yuan, having risen slightly after hitting a one-year low last week. The currency showed little reaction to a U.S.-China trade deal.

Private purchasing managers index data showed on Monday that China’s manufacturing sector grew much slower than expected in October. But the sector remained in expansion, contrasting government PMI data which showed a contraction.

The Singapore dollar’s USD/SGD pair rose 0.1%, while the Taiwan dollar’s USD/TWD rose slightly.

The Indian rupee’s USD/INR pair rose slightly and remained close to record highs at 89 rupees.