The Australian dollar fell to a four-month low on Wednesday after disappointing economic growth figures heightened expectations for earlier interest rate cuts. Meanwhile, South Korea’s won stabilized following the reversal of the martial law decision.
The Chinese yuan attempted to recover from its lowest point in over a year, as the People’s Bank of China set a stronger official trading band for the currency.
The U.S. dollar rebounded from a three-week low against the yen and edged higher against other major currencies as traders awaited additional labor market data for insights into Federal Reserve policy.
The euro remained steady above its recent two-year low, despite French lawmakers preparing to vote on no-confidence motions that are expected to topple the government.
The Aussie dropped as much as 1.22% to $0.6408, its lowest since August 4, before stabilizing at $0.6434 by 0449 GMT. The New Zealand dollar followed suit, losing 0.5% to $0.5850.
Australia’s economy grew at its slowest pace since the pandemic in the third quarter.
Markets now almost fully anticipate a rate cut in April, pricing in a 96% probability, up from 73% previously, and foresee a 35-basis-point reduction in May, up from 28 bps before.
“The key takeaway from the September update is that the expected gradual recovery in private demand has not materialized,” said Pat Bustamente, senior economist at Westpac.
“The weakness in annual spending growth and ongoing pressures on household disposable income—despite tax cuts—indicates a weaker underlying economic picture.” The South Korean won remained mostly unchanged at 1,413.80 per dollar after starting the day with a 0.5% gain, recovering nearly all of the previous day’s losses. The won had dropped to as low as 1,443.40 per dollar, its weakest level since October 2022, following President Yoon Suk Yeol’s surprise declaration of martial law.
Traders speculated that the central bank may have intervened to support the won by selling dollars at the open on Wednesday.
The political crisis escalated, with opposition lawmakers pledging to impeach the president, and Chosun Ilbo newspaper reporting that the entire cabinet plans to resign.
“Short term, it’s hard to see the won performing well,” said Rob Carnell, ING’s regional head of research for Asia-Pacific. “The structural backdrop is bleak, the domestic economy is weak, and the central bank is likely to ease more than expected. Added to that is political instability.”
Carnell added, “The fact that the dollar is generally stronger than other currencies is creating a near-perfect storm for the won.”
The U.S. dollar index, which measures the currency against six major counterparts including the yen and euro, rose by 0.09% to 106.42.
The dollar also gained 0.29% to 150.035 yen, continuing its recovery after dropping to 148.65 yen in the previous session, the lowest since October 11.
The dollar found support on Tuesday after data revealed a moderate increase in U.S. job openings in October and a decline in layoffs, although Federal Reserve officials offered little clarity on their plans ahead of the next policy meeting in two weeks. The dollar found support on Tuesday after data revealed a moderate increase in U.S. job openings in October and a decline in layoffs, although Federal Reserve officials offered little clarity on their plans ahead of the next policy meeting in two weeks.
