Asia FX dips as dollar hits 3-week high post-SNB rate cut

Most Asian currencies experienced sharp declines on Friday, as a rebound in the dollar gained momentum following an unexpected interest rate cut by the Swiss National Bank. This move prompted currency traders to shift their focus towards the greenback, leading to downward pressure on Asian currencies.

The dollar continued its upward trajectory in Asian trading, reaching a three-week high. This surge represents a continuation of its strong rebound from Thursday, with traders largely disregarding signals about potential interest rate cuts from the Federal Reserve in light of the Swiss National Bank’s rate cut.

Dollar strengthens to 3-week high as SNB rate cut overshadows Fed outlook

The dollar index and dollar index futures surged 0.8% and 0.2%, respectively, in Asian trade on Thursday, indicating significant demand for the greenback.

Both dollar indicators experienced a surge on Thursday following the Swiss National Bank’s unexpected decision to cut interest rates, making it the first major central bank to do so after an extended period of hiking rates in response to the COVID-19 pandemic.

As a result, the dollar emerged as the sole low-risk, high-yielding currency for the time being. Additionally, the greenback received a boost from the Bank of England’s dovish stance on Thursday, prompting traders to offload the pound and favor the dollar instead.

The dollar also saw support from a positive outlook for the U.S. economy. This was highlighted by the Federal Reserve’s significant upgrade to its growth forecast for 2024.

Despite the anticipation of interest rate cuts by June, the Federal Reserve‚s comparatively hawkish stance, when contrasted with other central banks, is anticipated to bolster the dollar.

The USDCNY weakened past 7.2, with the People’s Bank of China (PBOC) reportedly seen intervening in the market

The Chinese yuan experienced significant pressure from the strengthening dollar, compounded by the potential for further interest rate cuts by the People’s Bank of China.

The USDCNY pair surged by 0.4% on Friday, breaching the 7.2 level for the first time since November 2023. Reports indicated that the People’s Bank of China (PBOC) was intervening by selling dollars and purchasing yuan from the open market to bolster the Chinese currency.

The yuan weakened as senior officials from the People’s Bank of China (PBOC) indicated that there was further room to reduce the bank’s reserve requirement ratio, a move that would increase liquidity in the economy. However, such action is often seen as negative for the yuan.

The USD/JPY pair reversed its post-Bank of Japan (BOJ) fall and climbed back above 151

The Japanese yen remained flat on Friday but was recovering from significant losses overnight as the USDJPY pair retraced most of the declines seen after the Bank of Japan raised interest rates earlier in the week.

The USD/JPY pair hovered around 151.56, close to its highest level in four months.

Further weakness in the yen was stalled by strong consumer price index data for February, which lent further credence to the Bank of Japan’s recent policy pivot.

Broader Asian currencies fell on Friday, with the Australian dollar’s AUD/USD pair sliding 0.6%, while the South Korean won’s USD/KRW pair surged 0.4%.

The Singapore dollar’s USD/SGD pair rose 0.3%, while the Indian rupee’s USD/INR pair moved further above 83 and closer to record-high territory.

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