(Bloomberg) — The rally in Asian currencies this month is bringing some key levels into focus as traders await the Federal Reserve’s annual meeting in Jackson Hole this week, which is expected to underpin expectations for U.S. interest rate cuts this year.
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Bloomberg’s Asia dollar index is near a one-year high, while an indicator for the greenback has fallen to its lowest since March, as Fed rate cuts would narrow the interest rate gap between the U.S. and Asian economies and benefit the latter’s currencies.
The speech by the Governor of the Bank of Japan, Kazuo Ueda, in parliament on Friday is also on the radar, as any hint of further interest rate hikes would not only strengthen the yen, but could also give the regional currencies a further boost.
Here are the key levels traders are watching:
1. Yen
The dollar-yen pair consolidated between its August low of 141.70 and 149.39, the high to which it subsequently rallied. Whichever level is breached first, it could pave the way for a prolonged move in that direction. The yen is underperforming Asian currencies so far this year, falling 4% against the dollar, although it has recovered from its 1986 low following the BOJ’s recent rate hike.
2. Yuan
The offshore yuan has been trapped in a trading range this month. The currency rose to a 14-month high against the dollar in early August, but is still down about 0.2% this year. Investors will be waiting to see if the dollar-offshore yuan pair breaks out of the 7.0838-7.1945 range.
3. Rupee
The dollar-rupiah pair is aiming for a test of support at its November low of 15,360. However, it is already oversold, at least according to a momentum indicator called Slow Stochastics. That could prompt it to jump again to 15,843, its January 26 high, if the downward momentum fades. The rupiah has gained almost 5% against the dollar this month and is close to erasing its year-to-date losses.
4. Ringgit
With the dollar ringgit already in oversold territory according to the slow stochastics reading, a decline towards the March 9, 2023 high at 4.5317 could occur if the bearish momentum fades. However, if conditions turn even bleaker for the greenback, the next support level for the dollar ringgit will be the February 2, 2023 low at 4.2250. The ringgit has gained nearly 5% against the dollar this year, outperforming its Asian counterparts.
5. Baht
The dollar-baht pair is targeting its next support level at 34.099, the low of December 28. However, if the bearish dollar momentum fades, the pair could face resistance at 35.885, the high of January 24. The baht has gained more than 3% in both July and August and is close to erasing its year-to-date losses against the dollar.
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