Asia FX muted, dollar steady ahead of Fed, BOJ meetings

Investing.com-- Most Asian currencies kept to a tight range on Monday, while the dollar steadied near two-week highs as focus turned squarely to a swathe of central bank meetings helmed by the Bank of Japan and Federal Reserve. 

Strong U.S. inflation readings from last week put traders on guard over any hawkish sentiments from the Fed, while positive wage data and sticky inflation spurred mass speculation over whether the BOJ will end its ultra-loose policies this week.

USDJPY steady, BOJ rate hike in focus

The Japanese yen moved little on Monday after clocking a volatile week on speculation over an end to the BOJ’s negative interest rate and yield curve control policies. The BOJ kicked off its two-day meeting on Monday, with a hotly anticipated decision due on Tuesday.

The USDJPY pair had fallen as far as 146 to the dollar, especially after reports showed Japanese labor unions won large wage hikes this year. Recent data also pointed to inflation remaining sticky, with both factors giving the BOJ enough confidence to end its ultra-dovish policies.

But analysts still remained split over whether the bank will raise rates in March or April, with general consensus leaning slightly towards an April move. The BOJ is expected to raise rates by 20 basis points to 0.1% from negative 0.1%.

While any rate hikes bode well for the yen, speculation over the timing of the hike saw the USDJPY pair mark volatile moves in recent weeks. The currency pair hovered around 149 on Monday.

Fed meeting awaited for more rate cut cues 

The dollar index and dollar index futures moved little in Asian trade on Monday, steadying near two-week highs with focus squarely on the conclusion of a two-day Fed meeting on Wednesday.

While the Fed is widely expected to keep rates unchanged, any signals on its plans for interest rate cuts in 2024 will be closely watched. But the central bank may also strike a more hawkish chord than markets are hoping for, especially as recent data showed stickier-than-expected inflation in February. 

The prospect of higher-for-longer U.S. rates bodes poorly for Asian markets. This caution kept most regional currencies moving little on Monday, with a few more regional central bank decisions also on tap later in the week.

RBA, PBOC rate decisions also on tap

The AUD/USD rose 0.1% ahead of a Reserve Bank of Australia rate decision on Tuesday. The RBA is widely expected to keep rates on hold and offer few signals on when it plans to begin easing policy, especially in the face of sticky inflation.

The Chinese yuan tread water on Monday, with the USDCNY pair hovering around 7.1973. The People’s Bank of China is also set to decide on its loan prime rate this week, but is widely expected to leave the rate unchanged.

Data released on Monday offered mixed cues on the Chinese economy. While industrial production grew more than expected in the first two months of 2024, retail sales missed expectations and unemployment unexpectedly rose.

The South Korean won moved little with the USDKRW pair hovering around 1,332.01. The Singapore dollar was flat with USDSGD around 1.3378 following weaker-than-expected non-oil exports data from the island state.

The Indian rupee firmed slightly, with USDINR moving down 0.1% to 82.841, amid signs of continued support from the Reserve Bank of India.