The U.S. dollar maintained its strength and extended gains in Asian trading on Monday, with Japan’s holiday limiting liquidity and China’s underwhelming stimulus measures dominating market focus. The euro fell by 0.13% to $1.0922, while the pound briefly dipped 0.2% before stabilizing.
The dollar also rose 0.13% against the Japanese yen to 149.2750, and the dollar index (DXY) hovered above 103, nearing last week’s high—the highest since mid-August—as traders adjusted expectations for smaller U.S. Federal Reserve rate cuts this year.
China’s Yuan and Aussie Dollar Slip
China’s yuan weakened by 0.2% against the dollar, while the Australian dollar (AUDUSD), which is closely tied to China’s economy, fell 0.16% to $0.67385. Over the weekend, China’s Finance Minister Lan Foan announced plans to “significantly increase” government debt issuance to boost subsidies for low-income citizens, support the housing market, and recapitalize state banks. However, the lack of concrete details on the stimulus package left markets unimpressed.
According to Richard Franulovich, head of FX strategy at Westpac, the stimulus measures are unlikely to have a significant long-term impact, estimating only a 3-4 cent lift for the Australian dollar, with half of that already priced in.
Market Sentiment on China’s Economic Stimulus
The onshore yuan has dropped 0.7% against the dollar since Sept. 24, when the People’s Bank of China initiated aggressive stimulus measures. China’s CSI300 Index surged 18% initially but has shown volatility as concerns grow over whether the stimulus is sufficient to reignite economic growth.
Christopher Wong, a currency strategist at OCBC, noted that more targeted measures are needed soon to meet market expectations. Failure to deliver substantial policy support could lead to further market disappointment.
Major Currencies Hold Steady
Last week, major currencies saw modest declines: the yen and euro fell by 0.3%, sterling shed 0.4%, and the dollar index gained 0.4%. U.S. Treasuries are not expected to influence trading on Monday, with both U.S. and Japanese markets closed for holidays.
U.S. data last week showed slightly higher-than-expected consumer inflation but also increased weekly jobless claims, reinforcing the view that the Federal Reserve is likely to implement two 25-basis point rate cuts in November and December.
Upcoming Data and Events
Traders will be eyeing Thursday’s retail sales and jobless claims data in the U.S., along with the European Central Bank’s policy review. Fed Governor Christopher Waller is scheduled to speak later on Monday and is expected to advocate for a larger rate cut due to concerns about slowing inflation.
Elsewhere, the New Zealand dollar fell 0.15% to $0.61, following last week’s 0.8% drop after the central bank cut rates by half a point and hinted at further cuts. Singapore’s central bank kept its currency-based monetary policy steady on Monday.
