Asia FX muted before more rate cues; yen shrugs off intervention fears

Investing.com-- Most Asian currencies moved little on Tuesday even as easing safe haven demand saw the dollar weaken slightly, although anticipation of more cues on the U.S. economy and interest rates kept traders biased towards the greenback.

Regional currencies were still nursing steep losses against the dollar over the past week, as hawkish signals from the Federal Reserve and waning risk appetite pushed the dollar to over five-month highs.

These factors are expected to remain in play over the coming week. 

USDJPY hovers near 155 despite intervention fears, BOJ awaited 

The Japanese yen’s USDJPY pair moved little on Tuesday, but remained just in sight of new 34-year highs above the 155 level. 

Weakness in the yen came despite increasing speculation over just when the Japanese government will intervene in currency markets. Traders are watching for USDJPY to hit 155 level and trigger intervention by the government.

The drop in the yen comes just days before a Bank of Japan meeting, where the central bank is widely expected to keep rates on hold after raising them for the first time in 17 years in March. But the central bank may potentially present a more hawkish stance to support the Japanese currency.

Purchasing managers index data on Tuesday showed improvements in Japan’s manufacturing and services sector through April. Strength in the economy gives the BOJ more headroom to present a hawkish stance.

Dollar treads water with GDP, PCE inflation on tap 

The dollar index and dollar index futures moved little in Asian trade on Tuesday, with focus squarely on upcoming inflation and economic growth readings. 

While the greenback had strengthened sharply in recent weeks, its momentum was somewhat dulled by easing fears of an escalation between Iran and Israel, which sapped some safe haven demand for the dollar.

Gross domestic product data due on Thursday is expected to show just how resilient the U.S. economy remained in the first quarter.

This will be followed by PCE price index data on Friday, which is the Fed’s preferred inflation gauge, and is widely expected to factor into the central bank’s outlook for interest rate cuts.

The dollar still remained close to over five-month highs hit earlier in April, as waning expectations of early interest rate cuts by the Fed saw traders pile into the greenback. This notion kept most Asian currencies under pressure.

The Australian dollar’s AUDUSD pair rose from near five-month lows on Tuesday, with focus turning to an upcoming reading on consumer inflation for the first quarter. 

The Chinese yuan’s USDCNY pair tread water but remained close to five-month highs, while the South Korean won’s USDKRW pair also hovered close to five-month highs.

The Singapore dollar’s USDSGD pair was flat, while the Indian rupee’s USDINR pair hovered below record highs hit last week.