Asia FX cautiously higher as dollar retreats before CPI data

By Ambar Warrick

Investing.com -- Most Asian currencies rose slightly on Tuesday, capitalizing on some weakness in the dollar as traders awaited more economic cues from key U.S. inflation data due later in the day, while the Japanese yen rose amid speculation over the new Bank of Japan Governor.

The Japanese yen rose 0.3% and was among the best performers for the day after reports said that Japan nominated academic Kazuo Ueda as the next central bank governor - a surprise choice amid expectations that the role would go to career central bankers.

The unexpected pick also fueled some speculation that Ueda could dismantle the BOJ’s yield curve control sooner rather than later, as the country grapples with rising inflation and weakening growth.

Preliminary data showed on Tuesday that the Japanese economy grew less than expected in the fourth quarter, amid continued headwinds from inflation and weak overseas demand.

Broader Asian currencies rose slightly, while the dollar fell from a five-week high against a basket of currencies. The dollar index and dollar index futures both fell about 0.1% each.

Focus is squarely on U.S. consumer price index inflation due later in the day. While the reading is expected to have fallen in January from the prior month, it is still expected to remain relatively high.

Markets are also wary of any potential bigger-than-expected surprises in core inflation, which could give the Federal Reserve more impetus to keep raising interest rates this year.

Such a scenario bodes poorly for Asian currencies, given that it would drive up yields on less risky debt and pull capital away from the region.

Still, some profit taking in the dollar helped Asian currencies ahead of the data. China’s yuan rose 0.1%, while the South Korean won and the Taiwan dollar rose 0.4% and 0.1%, respectively.

The Indian rupee fell 0.1% as data showed that CPI inflation grew more than expected in January, and was now back above the Reserve Bank’s 6% upper limit. While the reading gives more credence to the RBI’s hawkish stance, it also points to near-term economic pressure on the Indian economy.

The Australian dollar was muted as data showed consumer sentiment worsened substantially in early-February, heralding a potential slowdown in spending as local economic growth slows.