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Asia FX nurses steep losses as dollar firms before Powell speech

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— Most Asian currencies were muted on Thursday, nursing steep overnight losses as the dollar firmed tracking a spike in Treasury yields before a closely-watched address by Federal Reserve Chair Jerome Powell.

Sentiment remained frail amid little signs of deescalation in the Israel-Hamas war, which kept traders wary of risk-driven assets. This was exacerbated by a rout in the bond market, as traders positioned for higher interest rates. 

The dollar benefited from this uncertainty, with the and gaining slightly in Asian trade. Both instruments rose about 0.3% in overnight trade, and were within sight of a 11-month peak. 

Focus is now squarely on a speech by at the Economic Club of New York later in the day. Given the recent rise in inflation, Powell is widely expected to reiterate his stance on higher-for-longer interest rates. 

In Asia, the was muted on Thursday after tumbling close to the 150 level against the dollar- which markets believe could attract currency market intervention by the government.

The yen took little support from data showing an unexpected improvement in Japan’s , given that also plummeted past expectations. Focus this week is now on , due Friday, which is likely to factor into the Bank of Japan’s plans to tighten monetary policy. 

The was the worst performer for the day, losing 0.6% as data showed some cooling in the country’s . Any further cooling is likely to give the Reserve Bank of Australia less impetus to raise interest rates. 

The shed 0.2% as the kept interest rates on hold for a fifth straight meeting. The was flat, but trading within sight of record lows as a spike in oil prices pressured the South Asian currency.

Chinese yuan frail as property market jitters offset GDP cheer 

The traded sideways on Thursday after the People’s Bank made no changes to its daily midpoint from the prior session.

While the currency had taken some support from data showing that China’s in the third quarter, it had swiftly reversed course amid growing concerns over a property market default in the country. The yuan was trading close to annual lows, comfortably above the 7.3 level against the dollar.

Beleaguered developer Country Garden Holdings (HK:) appeared to have missed a key coupon payment on its offshore bond holdings, potentially heralding a default on its foreign debt. Such an event could trigger a string of defaults for the developer and trigger a massive debt restructuring for China’s property market.  

A massive default in China’s property market bodes poorly for the economy, given that the market accounts for roughly a quarter of local economic activity.

Focus this week is also on a decision by the PBOC, although the bank is widely expected to keep rates unchanged.

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