Asia FX muted, dollar falls from 3-week high amid rate-cut uncertainty
Investing.com-- Most Asian currencies kept to a tight range on Tuesday, but saw some relief as the dollar was hit with profit-taking before key inflation data that is set to offer more cues on interest rate cuts this year.
Regional currencies marked a weak start to the year as markets questioned the potential for early interest rate cuts by the Federal Reserve. This uncertainty was exacerbated by data showing resilience in the U.S. labor space, which gives the Fed less impetus to begin loosening policy early.
While Asian currencies saw some relief this week, they were still trading largely lower for 2024, after a middling performance in 2023.
Several inflation and economic readings from Asia are also on tap this week- anticipation of which kept buying into regional units limited.
The Japanese yen rose 0.4% as data showed inflation in Tokyo fell closer to the Bank of Japan’s 2% annual target range in December. The BOJ has signaled that it will begin tightening its ultra-dovish policy only after the 2% target is achieved.
But the yen was nursing steep losses in the first week of 2024, as investors bet that rebuilding efforts in the wake of a devastating earthquake in central Japan will delay the BOJ’s plans for a pivot.
The Australian dollar rose slightly as data showed a bigger-than-expected jump in retail sales in November. The reading likely heralds some strength in a consumer price index (CPI) inflation reading for the month, which is due on Wednesday.
The Chinese yuan fell 0.1%, as sentiment towards China showed little signs of improving. Inflation data due this Friday is expected to show a continued deflationary trend in the country, while trade data is likely to show sustained weakness in its export engines.
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