Asia FX muted amid rate cut uncertainty; dollar set for fifth week of gains

Investing.com-- Most Asian currencies moved little on Friday and were set for a muted weekly performance as markets remained largely convinced that the Federal Reserve will not cut interest rates early this year.

Regional currencies took little relief from overnight losses in the dollar, which fell from a three-month high after data showed an unexpected contraction in retail sales in January. 

But the greenback curbed a bulk of its losses after Federal Reserve Bank of Atlanta President Raphael Bostic cautioned that it may take longer for the central bank to begin cutting interest rates, and that it was still unclear whether inflation would move back within its 2% annual target.

The dollar index and dollar index futures both rose 0.1% in Asian trade, and were up about 0.3% this week- their fifth consecutive week of gains. Bostic’s comments also came just a few days after consumer price index data showed inflation unexpectedly picked up in January.

Producer price index inflation data and an address by San Francisco Fed President Mary Daly, which are due later in the day, are expected to offer more cues on the path of U.S. interest rates.

Still, the U.S. CPI data saw traders begin largely pricing out expectations that the Fed will cut rates by as soon as May, or June. This trade weighed on most Asian currencies, and set them on course for muted weekly moves.

Yen hovers around 150 as markets weigh dovish BOJ, intervention

The Japanese yen was the worst performer among its peers this week, down 0.6% and trading near a three-month low. 

The yen was battered by increasing bets that the Bank of Japan will delay its planned interest rate hikes this year, especially as data on Thursday showed Japan unexpectedly slipped into a technical recession in the fourth quarter.

The yen was trading at 150.2 to the dollar. But bigger losses in the Japanese currency were limited to anticipation of potential government intervention in currency markets, given that weakness above the 150 level has drawn government intervention in the past. 

The Australian dollar fell 0.2%, while the Singapore dollar fell 0.1%, taking little support from data that showed the country’s key non-oil exports rebounded more than expected in January. 

The South Korean won fell 0.4%, while the Indian rupee hovered around the 83 level. 

Waning bets on early interest rate cuts by the Fed had battered Asian markets at the beginning of the year, with regional currencies seeing little relief in the face of higher-for-longer U.S. rates.