The Australian dollar, which had been suffering due to indicators of China’s slowdown and the U.S. economy’s resilience, increased 0.9% on Wednesday as U.S. manufacturing and services PMIs fell short of forecasts.
It maintained those gains on Thursday, just like the New Zealand dollar, the Japanese yen, and, for the most part, Asian emerging market currencies.
The Bank of Singapore’s Moh Siong Sim, a currency strategist, said that the PMI data “suggests that the outlook is not as great as one would hope and that might suggest some caution on the part of developed market central banks in terms of further tightening.”
It’s unquestionably bad news for the dollar and fantastic news for riskier assets.
According to August data released on Wednesday, the growth of U.S. business activity was at its lowest level since February and the economy appears to be starting to stagnate.
Ten-year U.S. rates had their sharpest one-day decline in more than three months, falling 13 basis points (bps) to 4.198% in response to the news, easing some of the pressure from recent increases.
Surveys indicate that services activity and manufacturing output in Europe are also declining. This dampens any potential gains for the euro, which was stable in Asia at $1.0866.
The economy in Britain entered a recession as a result of a decline in industry output, and the pound travelled back to its starting point of $1.2719.
The dollar index, which compares the value of the dollar to a basket of six major currencies, is still up for the month, but it fell slightly on Wednesday and remained unchanged at 103.39 throughout the Asian trading session.
Both the New Zealand dollar and the yen were little weaker at $0.5968 and 145.17 per dollar, respectively, as traders exercised caution in case Fed Chair Jerome Powell’s speech at Jackson Hole on Friday contains any surprises that could strengthen the dollar.
“Powell (will have) the opportunity to hone the data-dependency message from the July minutes, and possibly prepare investors for the forecast upgrade that is likely at the September Fed meeting,” said Sonia Meskin, head of U.S. macro at BNY Mellon Investment Management.
Because no additional increases in 2023 would be inconsistent with the upgraded growth estimate, she said, “we believe investors may be underpricing the potential for further hikes this year.”
Emerging market currencies in other parts of Asia increased or maintained overnight advances.
The Chinese yuan, which has recently benefited from state-bank purchases, increased somewhat along with a surge in Chinese stocks to reach 7.2690 per dollar.