Asia FX sees some relief as dollar cools; yen firms amid intervention talk

Investing.com-- Most Asian currencies firmed slightly on Tuesday as a recent rally in the dollar cooled, with the Japanese yen gaining some ground amid speculation over government intervention and rate hikes by the Bank of Japan.

But sentiment towards Asian markets remained fragile on the prospect of a trade war between China and the West. While Chinese ministers met with German officials over tariffs on electric vehicle imports, Canada was seen joining the U.S. in potentially imposing curbs on Beijing. 

Broader anticipation of key inflation prints from the U.S. and Japan also kept sentiment weak.

Japanese yen firms, USDJPY pulls back from near 160 

The yen gained some ground this week, with the USDJPY pair pulling back from levels which had sparked government intervention in May.

The USDJPY pair fell 0.2% to 159.36 after rising as high as 159.9 on Monday. Japanese officials kept up their warnings that they would intervene in the event of “excessive” volatility in the yen.

The minutes of the BOJ’s June meeting also offered some support to the yen, as some officials were seen raising the possibility of an interest rate hike in July. 

Focus this week is on key consumer price index inflation data from Tokyo, which is due on Friday. The reading is expected to offer more cues on the path of inflation, which is a key consideration for the BOJ in tightening policy. 

Chinese yuan fragile, USDCNY hits 7-mth high 

The Chinese yuan weakened on Tuesday, with the USDCNY pair surging to a seven-month high after a weak midpoint fix by the People’s Bank of China.

Sentiment towards China was largely soured by the prospect of a trade war with the West, after Chinese officials flagged such a possibility in the face of steep European import tariffs on electric vehicles. 

Canada was also seen considering curbs on Chinese EVs, potentially adding to concerns over a trade war. 

Traders were now watching dialogue between Chinese and German officials over the tariffs.

Dollar eases, PCE inflation awaited 

The dollar index and dollar index futures fell slightly in Asian trade, extending an overnight decline as they relinquished some gains from a strong rally through last week.

Focus this week was squarely on upcoming PCE price index data. The reading is the Federal Reserve’s preferred inflation gauge, and is likely to factor into the bank’s outlook on interest rates.

Concerns over China and anticipation of the PCE data kept most Asian currencies trading mostly steady, although weakness in the dollar helped them stall recent losses. 

The Australian dollar’s AUDUSD pair rose 0.1%, with focus also on a monthly CPI reading due on Wednesday. 

The South Korean won’s USDKRW pair was flat, as was the Singapore dollar’s USDSGD pair. 

The Indian rupee’s USDINR pair traded flat, but was trading off record highs high last week.