Asia FX muted, dollar near 2-mth low with CPI inflation in focus

Investing.com-- Most Asian currencies moved in a limited range on Monday, while the dollar languished near two-month lows as markets awaited key U.S. inflation data for more cues on when the Federal Reserve will cut interest rates. 

Regional currencies were sitting on some strength from last week after somewhat dovish signals from Fed Chair Jerome Powell and middling labor data reinforced bets that the central bank will begin trimming rates by as soon as June.

This trade weighed heavily on the dollar, pulling the greenback to near two-month lows, where it hovered on Monday. 

Japanese yen near 1-mth high as BOJ pivot bets grow 

The Japanese yen was among the biggest benefactors of a softer dollar, surging sharply in the past two sessions to an over one-month high.

The yen traded around 147 to the dollar on Monday, and was also supported by growing conviction that the Bank of Japan was close to ending its negative interest rates and yield curve control policies by as soon as next week.

An upward revision in GDP data showed the Japanese economy dodging a technical recession in the fourth quarter. Strength in the economy gives the BOJ more headroom to tighten policy sooner.

The BOJ is set to meet next week, with a Reuters report stating that policymakers were considering a rate move either in March or late-April.

Other Asian currencies moved in a flat-to-low range. The Australian dollar fell 0.2%, as waning bets over more interest rate hikes by the Reserve Bank weighed on the currency.

Signs of cooling economic growth also spurred expectations that the RBA will cut interest rates this year. 

The South Korean won and Singapore dollar strengthened slightly, while the Indian rupee steadied near six-month highs, with key inflation data from the country also on tap later this week.

Dollar steadies, CPI data awaited for rate cut cues

The dollar index and dollar index futures steadied above the 102 level on Monday, after clocking steep losses last week.

The greenback was walloped by comments from Fed Chair Jerome Powell that the central bank was close to seeing enough evidence of easing inflation. Powell also clarified that he was not looking for inflation to reach 2%  to begin considering rate cuts.

Adding to this pressure, data on Friday showed nonfarm payrolls grew more than expected in February. But January’s reading was revised substantially lower, while other readings showed unemployment rose, indicating some cooling in the labor space.

Powell’s comments put Tuesday’s CPI data squarely in focus, especially as several other Fed officials also signaled that any interest rate cuts by the Fed will depend largely on the path of inflation.