Asia FX firms as dollar dips with Fed, BOJ on tap

Investing.com-- Most Asian currencies firmed on Monday, while the dollar retreated before a Federal Reserve meeting this week that is likely to yield more cues on the bank’s plans to cut interest rates.

The Japanese yen was among the better performers, with the currency strengthening further on Monday after marking three weeks of outsized appreciation. A Bank of Japan meeting is also due later this week, with markets split over a 10 basis point hike. 

Broader Asian currencies steadied after weathering a swathe of selling last week, as uncertainty over the U.S. presidential race and continued concerns over China battered risk-driven assets. 

Dollar edges lower, rate cuts in focus 

The dollar index and dollar index futures fell 0.1% each in Asian trade, extending losses after PCE price index data- the Fed’s preferred inflation gauge- showed some easing in inflation on Friday.

The reading ramped up bets that the Fed was close to gaining enough confidence to begin cutting rates by September.

Focus this week is squarely on a Fed meeting, where the central bank is expected to keep rates unchanged. But given recent signs of easing inflation and dovish-leaning comments from officials, traders will be watching for any cues from the central bank on when it plans to begin trimming rates.

General consensus is for a 25 basis point cut in September, according to CME Fedwatch. 

Japanese yen firm, BOJ on tap 

The Japanese yen extended recent gains against the dollar on Monday, with the USDJPY pair falling 0.1% to 153.61 yen. The pair was also close to its lowest levels in nearly three months. 

The yen’s recent appreciation was driven by a mix of safe haven demand and an unwinding carry trade, and was initially sparked by suspected intervention by the Japanese government earlier in July.

Focus is now on an upcoming Bank of Japan meeting this week, where analysts are split over the central bank potentially raising interest rates by 10 basis points. 

Beyond a rate hike, the BOJ is also set to provide more details on how it plans to begin tapering its asset purchases. 

Broader Asian currencies edged higher. The Australian dollar’s AUDUSD pair added 0.2% as it steadied after enduring steep losses through the past week. A rout in commodity prices battered the currency.

The Chinese yuan’s USDCNY pair rose 0.1% after suspected government intervention sparked wild swings in the yuan last week.

The Singapore dollar’s USDSGD pair and the South Korean won’s USDKRW pair both firmed slightly.

The Indian rupee’s USDINR pair hovered just below record highs hit last week.