Asia FX falls, yuan battered by China disinflation jitters; Dollar steady

Investing.com-- Most Asian currencies fell on Monday, with the Chinese yuan among the worst performers after data pointed to a sustained deflationary trend in the country, while the dollar steadied in anticipation of a Federal Reserve meeting. 

The greenback saw some strength on Friday after a stronger-than-expected nonfarm payrolls reading, which dented expectations for an early interest rate cut by the Fed. The central bank is widely expected to keep rates on hold this week, although its signals for 2024 will be in close focus. 

The Chinese yuan lost 0.3% as data released over the weekend showed the country remained in disinflation for a second consecutive month, with consumer price index inflation falling at its fastest pace in three years. 

The reading ramped up concerns over a Chinese economic slowdown, as it came on the heels of several middling data prints for November. 

Steeper losses in the yuan were held back by a stronger daily midpoint fix from the People’s Bank of China. But sentiment towards the currency remained dour, and it appeared set to test the 7.2 level once again. 

Focus this week is on Chinese industrial production, fixed asset investment and retail sales data for November, due on Friday. 

Concerns over China weighed on broader Asian currencies. The Australian dollar fell 0.2% on its high trade exposure to China, while the South Korean won and Singapore dollar lost 0.2% and 0.1%, respectively. 

The Japanese yen fell 0.3%, but traded close to four-month highs hit last week following a slew of hawkish signals from the Bank of Japan. But the BOJ is still expected to keep policy ultra-loose in the near-term. 

The Indian rupee hovered close to record lows after the Reserve Bank stood pat on interest rates last week. But the RBI warned of a potential uptick in inflation, with consumer price index data for November due later this week. 

Dollar steadies with Fed in focus, early rate cut bets recede 

The dollar index and dollar index futures both rose slightly in Asian trade, after marking some gains on Friday. 

Stronger-than-expected nonfarm payrolls data saw traders scaling back bets that the Fed could cut interest rates in early-2024. Fed Fund futures prices show a 43% chance of 25 basis point cut in March, down from earlier expectations of over 60%. 

The central bank is set to keep interest rates steady at the conclusion of a two-day meeting on Wednesday. But its outlook on rates, especially in the light of recent labor market strength, will be in focus. 

Still, the strong labor reading signals some resilience in the U.S. economy, and heralds a potential soft landing. Beyond the Fed, U.S. inflation data is also on tap this week.