Currencies were in limbo on Monday as holidays in most of Asia made for thin trading, while traders braced for a packed week of central bank meetings that would offer the latest guidance on future rate hikes across continents.
The labour-day holidays in Singapore, Hong Kong and mainland China contributed to the slowdown in activity in the foreign exchange markets. The Japanese yen fell 0.2 percent to 136.67 per dollar on Monday, extending its post-BOJ slide. The Bank of Japan's monetary policy on Friday remained stable, with the yen down 1.7 per cent in the biggest daily drop since early February.
On Monday, the Australian dollar went on the defensive, easing 0.1 per cent to $0.6610. The currency fell 1.1 percent to a seven-week low of $0.6573, but has remained strong at the March trough of $0.6564.
The value of the New Zealand dollar was down 0.3 percent to $0.6172, bringing back some of the impressive rally last week.
The kiwi jumped 2.3 percent on Friday as the prospects for higher rates are being influenced by the Reserve Bank of New Zealand, which is expected to raise rates further this month.
Weighing on risk sentiment on Monday was the unexpected contraction in China's manufacturing activity in April and news on the weekend that U.S. major banks including JPMorgan Chase Co were vying to bid for First Republic Bank.
The Reserve Bank of Australia is expected to extend a rate pause on Tuesday, the Fed is expected to increase rates by another 25 basis points on Wednesday, and the European Central Bank could surprise with an outsized half-point increase on Thursday.
Goldman Sachs expects the Fed to signal a pause in June, after it delivers a quarter-point hike on Wednesday.
The focus will be on changes to the forward guidance in its statement, Goldman said in a note to clients.
Beyond May, we expect the FOMC to hold rates steady for the rest of the year, though several pathways are possible, with much depending on how severe the bank stress affects the economy. Australia's government bonds rose on Monday, catching up with their overseas counterparts.
Three-year yields slid as far as 12 basis points, but have since trimmed losses and were last at 3.001 per cent, while 10 years were last down 5 bps at 3.335 per cent.