Asian FX markets fall, Australian dollar trades sideways, Investing.com reports

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©Reuters.

Investing.com – Most Asian currencies fell on Tuesday as warnings from Federal Reserve officials and signs of more headwinds for China’s economy weighed on management sentiment, while the Australian dollar fell after the Federal Reserve took a seemingly dovish stance.

The dollar’s recovery from a six-week low boosted Asian trade after Minneapolis Fed President Neel Kashkari warned against getting too enthusiastic about ending the Fed’s rate hike cycle.

His comments tempered some optimism about the end of the Fed’s tightening cycle this year and caused traders to pull back from a strong rally in risk assets over the past four sessions.

This caused Asian currencies to reverse recent gains and the US dollar fell below the 150 level again. Copper, which is sensitive to interest rates, also fell 0.7%, while copper prices were trading near record lows.

Copper prices fell 0.8% after the Reserve Bank of Australia (RBA) met expectations and signaled a rebound in growth was stronger than the grim inflation outlook.

The price increase was largely due to stronger than expected prices, reversing a deflationary trend seen earlier this year.

But the change in the RBA’s language – particularly around more rate hikes, has led traders to bet the central bank has completed its rate hike cycle.

Specifically, the RBA’s view on future monetary tightening is more data-driven than previously suggested. However, Tuesday’s rate hike took Australian interest rates to a 12-year high.

It fell 0.1% as data showed China fell more than expected in October, while the country’s decline narrowed to a 17-month low.

Despite the unexpected growth, the weakness in exports points to continued decline in China’s biggest economic engine: exporters. The decline was mainly due to worsening demand in the country’s largest Western export destinations.

China’s weakness bodes ill for broader Asian markets, which rely on China as a trading hub. China’s launch later this week is expected to provide further signals about the Asian giant.

In Asian trading, stock index futures rose 0.2%, extending overnight gains from six-week lows.

Kashkari warned that while the Fed has made some progress in fighting inflation, interest rates remain well above the central bank’s 2% target – a trend that could attract more rate hikes.

He noted that the U.S. economy has proven resilient to unexpected events, which in turn could sustain inflation in the coming months.

Before Kashkari’s comments, markets were pricing in the Fed completing its rate hike cycle, especially after last week’s weak non-farm payrolls data. But traders reduced bets on a Fed pause on Tuesday.

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