On Thursday, attention has shifted to the impact of the U.S. dollar's surge on Asian currencies and the potential responses from local authorities, according to a report from ING. The dollar's recent ascent was fueled by robust March CPI and retail sales data, raising questions about how this will affect USD/Asia exchange rates.
The People's Bank of China (PBoC) has maintained steady fixings for the USD/CNY pair just above 7.10, despite a 1.5% rally in the trade-weighted renminbi as global currencies fell against the dollar. The PBoC's stance has sparked speculation about whether China will permit the renminbi to depreciate to align with the dollar's strength.
In contrast, the Japanese yen and Korean won have experienced significant depreciation, prompting serious concerns from their respective finance ministries. This led to an unprecedented trilateral meeting of finance ministers from Japan, Korea, and the U.S. on Wednesday, where Japan and Korea expressed their worries about the sharp currency declines.
The coordination between Japan and Korea suggests the possibility of joint intervention if the USD/JPY and USD/KRW trade through certain levels in a disorderly fashion.
One-month traded volatility for these currency pairs has been notably high, and historical data shows that both the Bank of Japan and the Bank of Korea have engaged in market interventions in the past year, with the Bank of Japan selling $70 billion and the Bank of Korea participating to the tune of $2 billion to $6 billion per quarter.
While large-scale intervention could temporarily curb the dollar's rise, analysts believe a reversal would require significant changes in current conditions. Federal Reserve officials, such as Michelle Bowman, have hinted at potential rate hikes, and escalating tensions in the Middle East could further bolster the dollar's demand.
For today, the U.S. economic calendar includes weekly jobless claims and existing home sales data. Additionally, several Fed speakers are scheduled, potentially addressing observations from last night's Beige Book about businesses facing challenges in passing cost increases to consumers—a point that may resonate with Fed doves.
ING anticipates a minor consolidation in the U.S. Dollar Index (DXY), possibly maintaining the 105.50/60 level, before the upward trend continues.
InvestingPro Insights
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