Asia FX gains as dollar dips ahead of CPI data; Kiwi battered by rate cut

Investing.com-- Most Asian currencies firmed on Wednesday, while the dollar dropped after a soft U.S. producer inflation reading pushed up hopes that similar easing in consumer inflation will spur deeper interest rate cuts.

The New Zealand dollar was an exception, logging steep losses after the Reserve Bank of New Zealand unexpectedly cut interest rates and said it had considered a bigger reduction.

Improving market sentiment also limited gains in the Japanese yen, although the currency retained a bulk of its recent rally. 

Dollar near 7-mth low on soft PPI data, CPI awaited 

The dollar index and dollar index futures weakened slightly in Asian trade, extending steep overnight declines and coming close to an eight-month low hit earlier in August. 

Losses in the dollar came after producer price index inflation data read softer than expected for July. 

The reading saw traders shift bets slightly towards a 50 basis point cut in September, although markets were still pricing in the potential for a 25 bps reduction, CME Fedwatch showed. 

But the PPI reading ramped up hopes that a consumer price index inflation reading, which is due later on Wednesday, will also show inflation eased in July- giving the Federal Reserve more impetus to begin trimming rates.

Hopes for a rate cut also come amid increasing concerns over a U.S. economic slowdown, which markets bet will invite even more easing from the Fed.

Beyond the inflation data, industrial production and retail sales readings are also due this week. 

NZ dollar tumbles after RBNZ cuts rates 

The New Zealand dollar was the worst performer among broader Asian currencies on Wednesday, with the NZDUSD pair sliding over 1%.

The RBNZ cut interest rates by 25 bps, with Governor Adrian Orr stating that the bank had also considered a 50 bps reduction. 

The RBNZ flagged progress in inflation reaching its 1% to 3% annual target, and also noted market expectations that interest rates will fall by 100 basis points by mid-2025.

Broader Asian currencies firmed tracking weakness in the dollar and bets on interest rates cuts.

The Japanese yen’s USDJPY pair steadied after strong overnight gains, although further strength in the yen was limited by improved risk appetite. Second-quarter gross domestic product data from Japan is due on Thursday, and is likely to factor into the Bank of Japan’s plans to trim rates.

The Australian dollar’s AUDUSD pair fell slightly, tracking weakness in the Kiwi, although the Aussie was still sitting on strong gains over the past week on a hawkish Reserve Bank of Australia.

The Chinese yuan’s USDCNY pair fell 0.1%, with focus turning to industrial production and retail sales readings from the country, due on Thursday.

The South Korean won’s USDKRW pair and the Singapore dollar’s USDSGD pair moved in a flat-to-low range, while the Indian rupee’s USDINR pair remained close to record highs, near 84 rupees.