Asia FX Muted as Dollar Finds Footing Ahead of Nonfarm Payrolls

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By Ambar Warrick 

AiVIF.com-- Most Asian currencies were muted on Friday as caution kicked in ahead of a key U.S. labor report, while pressure from the dollar also weighed amid continued hawkish signals from the Federal Reserve.

South Korea’s won was an exception, rising 0.4% and extending recent gains on hopes that the South Korean government will continue to intervene in currency markets. The won recovered from a 13-year low this week. 

The South Korean currency was set to rise about 2.6% this week, its best weekly performance since March 2020. The South Korean government on Friday also vowed to stabilize local markets and tame inflation. 

The Indian rupee fell 0.3% and hit a record low of 82.356 against the dollar on Friday, as it faced pressure from a sharp jump in oil prices this week. The currency has hovered around record lows for most of 2022, despite intervention measures and interest rate hikes by the Reserve Bank. 

The Japanese yen was muted near 145 to the dollar, even as data showed household spending declined in August, pointing to more pain for the world’s third-largest economy in the coming months. Japan is also struggling with heightened commodity prices and a severely weakened yen this year.

The Malaysian ringgit led losses across Southeast Asia with a 0.4% drop, while China's offshore yuan shed 0.2%. Chinese markets were closed for a week-long holiday. 

The dollar index recovered from recent losses and was trading flat around 112.13, as were dollar index futures. The greenback rose overnight after several Federal Reserve officials reiterated that the bank was unlikely to make a dovish pivot in the near-term.

Focus is now on U.S. nonfarm payrolls data due later on Friday. The reading is expected to show steady growth in the labor market, giving the Fed enough space to keep raising interest rates sharply.

Still, data on Thursday showed that U.S. weekly jobless claims grew slightly more than expected, pointing towards some softness in the labor market. 

Asian currencies have fallen sharply this year amid pressure from rising U.S. interest rates and a stronger greenback. This trend is broadly expected to continue in the coming months, given that the Fed has shown no intent to soften its hawkish stance.