Foreign-exchange trading was subdued across Asia-Pacific on Oct. 26. The dollar briefly climbed above 157.10 yen before falling below 156.75, while the onshore yuan strengthened to its highest level since June 9, 2022. Oil prices, regional tensions and a busy calendar of central-bank decisions remained in focus.
Dollar-yen retreats, with moves contained
The dollar-yen pair rose above 157.10 early in the session, then slipped below 156.75. Despite the pullback, the trading range was narrow, with no broad-based move across major Asia-Pacific currencies.
Markets are watching a cluster of central-bank decisions this week for signals on the interest-rate outlook. The Federal Reserve is expected to leave rates unchanged when it announces its decision on Wednesday. The Bank of Japan meets on Thursday and Friday, with markets also expecting it to hold rates steady. Any shift in rate expectations could affect the relative performance of major currencies.
Onshore yuan at its strongest since June 2022
The onshore yuan gained in early trading, reaching its strongest level since June 9, 2022. The People’s Bank of China set the dollar-yuan midpoint at 6.7162, compared with a market estimate of 6.6691.
The yuan’s advance and the dollar’s intraday retreat against the yen were the session’s main currency moves. Available market information did not identify a specific driver for the yuan’s strength or provide trading-volume and cross-rate data, making it difficult to assess whether the move will persist.
Oil and rate decisions shape the backdrop
Oil opened lower on Monday, giving back some of last week’s gains. Prices had retreated from near a six-month high after the United States did not further escalate tensions involving Iran over the weekend. However, attacks targeting Saudi Arabia continued to fuel supply concerns, limiting the decline. Energy prices can feed into market expectations for inflation and interest rates.
Several central banks are due to announce policy decisions this week. The Reserve Bank of New Zealand and the Bank of Canada are expected to raise rates on Wednesday, while the Fed is expected to hold. The European Central Bank is forecast to leave rates unchanged on Thursday. The Bank of Japan’s meeting runs from Thursday to Friday, with markets also anticipating no change. Diverging policy expectations will be a key focus for currency markets.
Brazil election prompts real-risk scenarios
President Luiz Inácio Lula da Silva won Brazil’s presidential runoff on Sunday, defeating right-wing senator Flávio Bolsonaro. After the result, a Tokyo-listed exchange-traded fund tracking Brazil’s Bovespa index fell nearly 15% in Asian trading.
Goldman Sachs outlined an extreme scenario involving a 10% rise in the dollar against the Brazilian real, an increase of about 200 basis points in long-term government bond yields, a 30-to-40-basis-point widening in credit spreads and a roughly 15% decline in Brazilian equities. These are scenario estimates, not confirmation of actual market moves. The election’s impact on the real and local assets will depend on subsequent developments in the currency, bond and equity markets.